U.K. and Swiss finance regulators are starting an investigation into the $2 billion trading loss at UBS AG (UBSN) that led to trader Kweku Adoboli’s arrest on fraud charges.
The probe into the firm’s accounts will be handled by a third-party firm that’s independent of Zurich-based UBS, the Financial Services Authority and the Swiss Financial Market Supervisory Authority said in a joint statement yesterday. Adoboli was charged yesterday in London with fraud and false accounting, less than 36 hours after he was arrested.
The “comprehensive independent investigation into the events surrounding the trading losses incurred by UBS” in London will focus on the details of the allegedly unauthorized trades, control failures that allowed them to happen, and an assessment of the bank’s methods to prevent fraudulent trading, the regulators said. It’s unclear how long the investigation will take, according to the statement.
UBS notified the police and regulators of the unauthorized trades early in the morning Sept. 15. Adoboli was arrested at 3:30 a.m. and remains in police custody in London. He is being held until Sept. 22, when he can request bail at a court hearing.
The City of London Police said their investigation is continuing and they are working with the FSA, the Crown Prosecution Service, and the Serious Fraud Office, which prosecutes white-collar crime in the U.K.
Prior UBS Fine
Two years ago, the FSA fined UBS 8 million pounds ($12.6 million), at the time the third-largest penalty ever imposed by the regulator, for not stopping employees in its U.K. international wealth-management business from making unauthorized trades with customer money.
UBS’s loss is the largest of its type since former Societe Generale SA derivatives trader Jerome Kerviel caused a 4.9 billion-euro ($6.8 billion) loss in 2008.
The FSA said in a March 2008 policy document it had discussed the Kerviel case with as many 50 banks in London and that “many had already put in place reviews to ensure they identify any gaps in trading controls and close them as soon as possible.”
The FSA warned banks to monitor traders’ positions for material risks and said that most firms were satisfied “that their basic controls and governance surrounding trading, risk management and settlement activities are effective.”
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