On 20th November 2012 Mr Kweku Adoboli was convicted of two counts of fraud by abuse of position and was sentenced to seven years imprisonment. Mr Adoboli was accused of unauthorised trading, on the Exchange Traded Funds Desk in the Global Synthetic Equities trading division at the London branch of UBS, which resulted in losses totalling US$2.3 billion. In order to disguise his activity Mr Adoboli booked fictitious trades to internal accounts, booked real trades late in order to manipulate the profit and loss and used fictitious exchange traded funds. His activities were discovered by UBS and he was arrested in September 2011.
On 25th November, the financial services Authority (“FSA”) issued a Final Notice in respect of UBS. The notice states that UBS breached principles 2 and 3 of the FSA’s Principles for Businesses. The FSA determined that the systems and controls in place were inadequate and the significant breakdowns of controls allowed Mr Adoboli’s unauthorised trading to remain undetected for a considerable period. The Final Notice states that “UBS breached principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems and breached principle 2 by failing to conduct its business from the London Branch with due skill, care and diligence”.
The fallings of UBS were determined to be particularly serious by the FSA as they put market confidence at risk and they enabled a significant financial crime to be committed. Tracey McDermott, director of enforcement and financial crime, stated that “failures to manage risk properly can cause firms to fail and cause systemic harm”.
UBS has been fined the sum of £29.7 million. The fine was reduced from £42.4 million as UBS agreed to settle at an early stage and therefore qualified for a 30% discount under the FSA’s executive settlement procedures. The fine is reportedly the third largest fine imposed by the FSA.
The fine imposed represents 15% of the revenue of the Global Synthetic Equities trading division. When calculating the fine the FSA took into account the revenue generated by the division as well as the fact that UBS was fined £8 million in November 2009 in respect of failings in systems and controls in the international wealth management business in the London branch of UBS. The FSA expects where a firm receives a fine to consider whether the issues raised in enforcement action are applicable to other areas of the business and whether action should be taken. The FSA determined that UBS failed to do this after the enforcement action in 2009.
This fine acts as a reminder to firms that where an employee engages in criminal conduct it is not only that individual who will come under scrutiny. The FSA will take a dim view if the activity, or lack thereof, of the firm enables such criminal activity to take place. The firm will have to explain how such criminal activity could have gone on. All firms should ensure that they have adequate risk management procedures in place which are suitable for the needs of the business. Failure to do so can have significant and potentially disastrous financial and reputational consequences.