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Investment bank fined £8m for gambling clients' cash

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Press Association
Press Association
Editor
5 November 2009

Investment bank UBS was today hit with an £8 million fine after traders gambled clients' cash without permission and tried to cover their tracks.

The Financial Services Authority's penalty the third-biggest fine it has ever imposed comes after a whistleblower raised concerns about astonishing internal abuses.

Traders in the group's wealth management arm bet on currencies and precious metals without authorisation and allocated losses to accounts of the division's wealthy client base between January 2006 and December 2007 (see the Investment Buying guide).

UBS which has paid back more than 42.4 million US dollars (£25.5 million) to clients so far launched its own probe and found as many as 50 unauthorised trades taking place every day at the peak.

UBS came forward to the regulator in January last year. The FSA found the bank failed to manage risks, spot warning signs in the business and properly supervise customer-facing employees.

Techniques to cover up the activities by the four rogue employees included persuading clients with well-funded accounts to "lend" cash to those who had suffered losses through the unauthorised trading using bogus "UBS Guarantee Letters" to give the impression that the loan was approved by the bank.

UBS "deeply regrets" the incident and added that the four staff involved were no longer with the bank. It said it had taken "full remedial steps" to avoid a repeat.

FSA enforcement director Margaret Cole says the fine showed firms would suffer "severe" consequences if its systems failed to keep staff in check.

"These employees were able to take advantage of UBS' inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal," she adds.

The only larger fines ever imposed by the watchdog was a £17 million penalty imposed on Royal Dutch Shell in 2004 after the oil giant overstated its reserves and a £13.9 million punishment on Citigroup for disrupting bond markets in 2005.

Further reading/Key links

Cut costs: Investment Buying

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