UBS fined £8m for systems and controls failures

The UK Financial Services Authority (FSA) has fined UBS £8 million for systems and controls failures that allowed four employees to carry out unauthorised transactions using customers’ money.

The fine is the third highest ever imposed by the FSA and shows the regulator’s determination to make financial firms live up to their responsibilities, says Abi Jones, an FSA spokesperson.

Margaret Cole, FSA director of enforcement and financial crime, warns firms could face steep penalties in the future. “It is imperative 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. The penalty reflects our tougher enforcement stance and our policy of imposing steep penalties to achieve credible deterrence.”

The employees were able to take advantage of UBS’s “inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal”, says the FSA.

The transactions took place between January 2006 and December 2007 at UBS’s London-based wealth management business unit. The fraud only came to light when a whistleblower raised concerns internally, the FSA says.

The employees traded in foreign exchange and precious metals using customers’ money then allocated losses to the customers’ accounts. An internal UBS investigation estimated that as many as 50 unauthorised transactions a day were taking place at the operation’s peak.

The FSA says UBS failed to manage and control the risks, and the level of risk created by its international wealth management business model, and that it failed to implement effective remedial measures in response to several warning signs that suggested the business’s systems and controls were inadequate. UBS also failed in its supervision of customer-facing employees.

UBS says it “deeply regrets” what happened. “This sanction arises from control failings within our UK international wealth management business, dating back to 2007, as identified in the FSA's final notice and in respect of which UBS has already taken full remedial steps,” the bank says.

The bank has confirmed it paid compensation of more than $42 million as redress for its customers’ losses. The four employees involved no longer work at the bank. Systems and controls have been enhanced, and staff given more training to ensure similar incidents do not take place again.

UBS agreed to settle at an early stage of the FSA’s investigation, allowing it to obtain a 20% discount on the fine. Without the discount, it would have been £10 million.