The FSA has fined UBS £29.7 million for systems and controls failings that allowed Kweku Adoboli to cause losses totalling $2.3 billion as a result of unauthorised trading. The fine was discounted from £42.4 million for early settlement. Adoboli has been convicted of two counts of fraud by abuse of position and sentenced to seven years’ imprisonment.

The FSA says systems and controls failings revealed serious weaknesses in the firm’s procedures, management systems and internal controls. UBS' failings included: the computerised system operated by the company 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. 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; there was an understanding amongst personnel supporting the Desk that the Operations Division's main role was that of facilitation. Their main focus was on efficiency as opposed to risk control and they did not adequately challenge the Front Office.

Tracey McDermott, director of enforcement and financial crime, says: "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. 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.

"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. This penalty - fixed at 15 per cent of the revenue of the GSE trading division - is intended to make it clear that the FSA expects much higher standards from the firms we regulate."

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