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UBS fined £29.7 mn over Adoboli scandal  Join our daily free Newsletter

MENAFN - AFP - 26/11/2012

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(MENAFN - AFP) Britain's financial regulator said Monday it had fined Swiss bank UBS 29.7 million (36.7 million euros, 47.6 million) for failings that allowed Kweku Adoboli to commit the country's biggest fraud.

Adoboli, 32, was jailed last week for seven years after gambling away 2.3 billion (1.8 billion euros) of the lender's money.

"The FSA has fined UBS AG 29.7 million for systems and controls failings that allowed an employee to cause substantial losses totalling US2.3 billion as a result of unauthorised trading," the watchdog said in a statement.

It added: "The systems and controls failings revealed serious weaknesses in the firm's procedures, management systems and internal controls."

Last Tuesday, a jury in London found the Ghanaian-born banker guilty of two counts of fraud, though it cleared him of four charges of false accounting.

UBS became aware in September 2011 that unauthorised trades had taken place on the Swiss bank's Exchange Traded Funds Desk on its Global Synthetic Equities (GSE) division in London.

"UBS's systems and controls were seriously defective," said Tracey McDermott, director of enforcement and financial crime at Britain's Financial Services Authority (FSA) watchdog, in a statement.

"UBS failed to question the increasing revenue of the desk and failed to ensure that there was a corresponding increase in the controls in place over the desk.

"As a result Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly.

"We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm."

The FSA, which carried out a probe with the Swiss Financial Market Supervisory Authority (Finma), said in Monday's statement it uncovered several "particularly serious" failings.

The regulators said that the computerised system operated by UBS to assist in risk management was not effective, while its trade capture and processing system had "significant deficiencies".

They added that "inadequate front office supervision" was also discovered including poorly executed and ineffective supervision arrangements within the GSE unit.

"Market confidence was put at risk, given the sudden announcement to the market and size of the losses announced," the FSA statement added.

"Negative announcements, such as this, put at risk the confidence which investors have in financial markets.

"The systems and controls failings revealed serious weaknesses in the firm's procedures, management systems and internal controls. The failings enabled Adoboli to commit financial crime."

UBS qualified for a 30-percent discount in the fine after agreeing to settle early. The bank would have otherwise faced a total fine of 42.4 million from the FSA.

During the two-month trial, Adoboli admitted losing the enormous sums but denied any wrongdoing. He claimed that senior UBS managers were fully aware of his activities and encouraged him to take risks and raise profits.

However, prosecutors said that in a bid to boost his bonuses and chances of promotion, Adoboli exceeded his trading limits, failed to hedge trades and faked records to cover his tracks between 2008 and 2011.

The tactics initially paid off -- prosecutors said he earned 90 million for UBS and its clients by May 2011 and the bank rewarded him with huge bonus increases, rising from 15,000 in 2008 to 250,000 (398,000, 311,000 euros) in 2010. But as the financial crisis took hold, Adoboli's deals went bad.

"There is a strong streak of the gambler in you," judge Brian Keith had told Adoboli, as he sentenced him. "You were arrogant to think the bank's rules for traders did not apply to you.


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