Failure to stop unauthorised trades lands UBS with £8m fine

Swiss bank's staff made losses using client funds
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The Independent Online

The embattled Swiss bank UBS was dealt a fresh blow yesterday as the chief City watchdog hit it with an £8m fine as a result of its failure to prevent employees from making hundreds of unauthorised trades using wealthy clients' money.

It is the third biggest penalty imposed by the Financial Services Authority, which has started a crackdown on financial companies that fail to effectively police their employees' activities.

The fine was levied against the wealth management business and comes as a a major blow to the group on the back of its battles with the US authorities over tax and huge losses racked up during the credit crunch. Wealth management operations deal with hugely wealthy individuals who expect high standards from the companies to which they entrust their money.

The watchdog said four UBS bankers were able to carry out a series of unauthorised transactions in precious metals and foreign exchange markets across 39 accounts over a period of two years.

The trades lost money and the losses were allocated to the clients' accounts – so far the bank has paid out $42m in compensation as a result of their actions. At the peak of their activities the four were able to carry out as many as 50 trades a day unbeknown to UBS or the clients.

Margaret Cole, the FSA's director of enforcement and financial crime, said: "These 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. It is imperative, particularly in these more challenging financial conditions, that 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."

UBS was once seen as the jewel in the crown of Switzerland's banking industry, but its reputation has been badly tarnished in recent years at a time when its bitter rival Credit Suisse has seen a revival in its fortunes.

The fine is the second penalty levied as a result of the actions of City staff in the past month. In October the stockbroker Seymour Pierce was told to pay £154,000 after an employee was able to remove £150,000 from client accounts.

The bank said: "UBS deeply regrets this incident and having fully co-operated with the FSA's investigation we are now pleased that this matter has been settled so that we can move forward."

Simon Morris, partner of the City law firm CMS Cameron McKenna, said: "This is good news for the FSA. It now comes across as the credible deterrent against financial crime that it has so long talked about becoming. It is also good news for the City, which benefits from being viewed as one of the world's cleanest market places."

The FSA's biggest fine was £17m levied against Shell in August 2004 over the mis-statement of its oil and gas reserves. Citigroup was fined £13.9m in June 2005 over a trading coup that nearly broke the European bond trading platform MTS.

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