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UBS Fined By British Regulators For Lack of Internal Controls in Rogue Trader Case

UK regulators levied a fine against UBS today after finding that the bank's weak oversight of its investment operations allowed a trader to book over $2 billion in losses and conceal them for months.

UBS was fined 29.7 million euros for oversight failures related to massive trading losses the bank incurred from a rogue trader, according to reports published this morning. The UK's Financial Services Authority charged the Swiss Bank with the third highest fine that the authority has ever called for, saying that the bank's laxity in its internal controls permitted Kweku M. Adoboli, a former trader at UBS's London-based Exchange Traded Funds desk, to rack up $2.3 billion in losses.

Adoboli was sentenced to a seven-year prison term last week on two counts of fraud for abusing his position. The losses, which took place during a four-month period on 2011, were concealed by using late bookings of real trades while booking fictitious trades to internal accounts and using fictitious deferred settlement trades, according to reports.

The Financial Services Authority said that cracks in UBS's internal policies allowed the trading losses to fly under the radar for a long period. In particular the regulatory body cited a lack of integration between the bank's computerized dealing, trade capture and position keeping systems, and accused the bank of fostering a culture that praised efficiency and ignored risk considerations.

[See Related: Former UBS Trader Faces Trial Over $2.3 Billion Losses]

UBS agreed to settle with regulators at an early stage in the investigation, which cut the fine from the FSA by 30 percent. Otherwise the bank would have been fined 42.4 million euros. UBS will also pay 16 millions euros to contract an independent firm to investigate the incident. The Swiss Financial Market Supervisory Authority is also appointing an independent investigator to audit and improve risk management systems at UBS.

The Swiss bank is in the middle of an operational overhaul, and announced 10,000 job cuts last month in its investment banking operations. Half of those cuts are expected to occur at the London trading office.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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