'Ineffective' IT system blamed for UBS' fraud oversight
Rogue trader Kweku Adoboli has been sentenced to seven years’ in prison
By Derek du Preez | Computerworld UK | Published 14:00, 27 November 12
The Financial Services Authority (FSA) has largely blamed UBS' computerised risk management systems for failing to control the £1.4 billion losses incurred by rogue trader Kweku Adoboli.
UBS was handed a £29.7 million fine by the FSA for systems and controls failings.
Adoboli was recently convicted of two counts of fraud by abuse of position and sentenced to seven years' imprisonment.
The FSA report said, "The computerised system operated by UBS to assist in risk management was not effective in controlling the risk of unauthorised trading.
"The trade capture and processing system had significant deficiencies, which Adoboli exploited in order to conceal his unauthorised trading."
It continued, "The system allowed trades to be booked to an internal counterparty without sufficient details, there were no effective methods in place to detect trades at material off-market prices and there was a lack of integration between systems."
UBS became aware of the unauthorised trading in September of last year.
The bank has previously admitted that certain internal controls were not in place at the time that Adoboli ran up the mammoth loss on the bank's derivatives desk but 'this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced".
It followed a memo that interim chief executive Sergio Ermotti sent to employees saying that the bank was aware that its IT systems did detect the rogue activity.
Tracey McDermott, director of enforcement and financial crime at the FSA, said that the fine represents the damage caused to the integrity of the markets.
"UBS's systems and controls were seriously defective. 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," she said.
"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."
She added, "Failures of this type in firms of the size and standing of UBS not only damage the firms concerned but also wider confidence in the integrity of the markets and the financial system. It is imperative that the markets we regulate are seen by investors to be orderly and a safe place to do business."
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