Swiss banking giant UBS has been fined £29.7 million by the City watchdog for failings which allowed convicted rogue trader Kweku Adoboli to lose £1.4 billion.
The Financial Services Authority (FSA) said procedures, management systems and internal controls at the bank's London branch were "seriously defective".
Adoboli was sentenced to seven years in prison last week after he was convicted of two counts of fraud by abuse of position.
Tracey McDermott, FSA director of enforcement and financial crime, said: "UBS's systems and controls were seriously defective."
She went on: "As a result, Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly.
"We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm."
UBS became aware on September 14 last year that unauthorised trading had taken place on the Exchange Traded Funds Desk in the Global Synthetic Equities (GSE) trading division in London.
Adoboli disguised the underlying positions by the use of late bookings of real trades and the booking of fictitious trades.
The FSA, in an investigation with the Swiss Financial Market Supervisory Authority (Finma), uncovered several "particularly serious" failings which put wider market confidence at risk and allowed Adoboli to commit financial crime.
The computerised system operated by UBS to assist in risk management was not effective, the regulators said, while its trade capture and processing system had "significant deficiencies".
Inadequate front office supervision was discovered including poorly executed and ineffective supervision arrangements within the GSE division.
Adoboli was at one point on the verge of causing losses of 12 billion US dollars (£7.5 billion), and the hole he eventually left was the largest trading loss ever in British banking history.
Prosecutors claimed Adoboli - who was heavily involved in spread-betting in his spare time - was a gambler who believed he had the "magic touch".
The 32-year-old admitted the enormous losses but claimed he was pressured by staff to take risks, culminating in a catastrophe which wiped £2.8 billion off the bank's share value.
James Carlton, a partner specialising in areas of business crime and regulation at Fox Williams, said: "This case illustrates that Kweku Adoboli, while 'rogue', could not have achieved what he did without there being significant failings within the overall trading operations and UBS clearly accepts a degree of corporate culpability for this.
"This case continues to underline the need for all financial institutions to have in place, and to continually monitor, highly comprehensive control systems which effectively balance the conflicting needs between regulatory compliance and corporate profit."