UBS AG (UBSN), Switzerland’s largest bank, faces a fine of about 45 million pounds ($71.7 million) for failing to detect billions in unauthorized trades by Kweku Adoboli, according to a person familiar with the situation.
The bank could get a maximum penalty of as much as 50 million pounds from the U.K.’s Financial Services Authority, said the person, who asked not to be identified because the fine isn’t yet public. The final sanction is more likely to be closer to 45 million pounds and hasn’t yet been negotiated, said the person. A fine of that amount would be the U.K.’s second-highest ever.
Adoboli, a former trader in UBS’s London office, was sentenced to seven years in jail on Nov. 20 for fraud in relation to the $2.3 billion loss, the largest from unauthorized trading in British history. A UBS investment-bank executive testified during Adoboli’s trial that losses from his trades could have reached $12 billion.
Swiss regulator Finma is doing a joint report with the FSA. The agency’s investigation “is still ongoing and we will comment once it is concluded,” said Tobias Lux, a spokesman for the Swiss regulator.
Adoboli’s conviction puts him in the same group as rogue traders Jerome Kerviel, who was found guilty of causing a 4.9 billion-euro ($6.3 billion) trading loss at Societe Generale SA, and Nick Leeson, the former derivatives trader jailed for losses that brought down Barings Plc in 1995.
While UBS warned investment-bank employees to report signs of illicit trading after Kerviel’s loss, Adoboli said he could only reach the bank’s goals by ignoring such warnings.
Adoboli was accused of exceeding his trading limits and hiding the risk to the bank by booking fake hedges. He confessed to causing the losses before he was arrested in September 2011, saying he risked $5 billion on Standard & Poor’s 500 futures and a further $3.75 billion in the German futures market. He was cleared on four counts of false accounting.
Tim Harris, a lawyer for Adoboli, said yesterday his client didn’t intend to put UBS on trial.
“His aim, apart from proving his innocence, was to ensure that traders and institutions do not recreate the mistakes made -- by either himself or UBS -- that gave rise to these enormous losses,” Harris said. “His trial has thrown a considerable spotlight on the practices of financial institutions: their expectations, level of oversight and supervision of junior staff and the management of risk, funding and treasury control.”
UBS paid around 20 million pounds to KPMG LLP for its investigation into the trading losses, ordered by the FSA and Finma, said another person familiar with the probe. The investigation took eight months and more than 100 investigators were involved, the person said.
The FSA fined Barclays Plc a record 59.5 million pounds in June -- part of a 290 million pound fine by U.S. and U.K. regulators -- for attempting to manipulate the London interbank offered rate. Its second-largest fine was against a JPMorgan Chase & Co. unit in 2010 over a failure to segregate client money from the bank’s funds.
UBS has been docked by the regulator before, over unauthorized trading in its wealth-management unit in London. The bank paid an 8 million-pound fine to the FSA in 2009 and agreed to reimburse customers $42.4 million over the losses.
UBS officials believe the fine over Adoboli’s losses shouldn’t be the FSA’s highest-ever because the bank was a victim and no clients lost money, according to one of the people. Finma may issue its report into the control lapses at UBS as early as next week, said one of the people. The Swiss regulator won’t issue a fine, the person said.
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