Whistleblower reveals unauthorised trading and risk control failures
The Financial Services Authority (FSA) has fined UBS £8m for failures that enabled four employees unauthorised access to at least 39 accounts. The fine is the third largest the FSA has ever imposed.
UBS agreed to settle at an early stage of the FSA's investigation meaning it qualified for a 20% discount.
In connection with the incident, UBS has also paid compensation in excess of US$42m by way of redress for its customers' losses.
The illegal transactions took place between January 2006 and December 2007 at UBS' London-based wealth management business. They only came to light when a whistleblower raised concerns internally.
The UBS employees had traded on foreign exchange and precious metals using the customer’s money and allocated losses to their accounts. As many as 50 unauthorised transactions were taking place each day.
According to the FSA UBS had failed to:
>Manage and control the key risks, and the level of risk, created by its international wealth management business model;
>Implement effective remedial measures in response to several warning signs that suggested the business' systems and controls were inadequate; and
>Provide an appropriate level of supervision over customer-facing employees.
Margaret Cole, FSA director of enforcement and financial crime, said: "The penalty, one of the largest fines we have levied, reflects our tougher enforcement stance and our policy of imposing steep penalties to achieve credible deterrence.”
"These employees were able to take advantage of UBS' inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal.”
"It is imperative, particularly in these more challenging financial conditions, that firms have suitable systems and controls in place to keep their houses in order. Where firms fall short in this regard, the consequences will be severe."