The first City boss to be fined for failings by his subordinates is challenging what his employer UBS describes as an “unwarranted” £100,000 penalty issued by the City watchdog in what is being seen as test case before an independent tribunal.
John Pottage personally committed no offence, but he was hit with the fine because the Financial Services Authority alleges that he had failed to take action to deal with “serious flaws in the control environment at UBS Wealth Management” when he was appointed to head the division in 2006.
The regulator said it accepted that Mr Pottage inherited rather than created the deficiencies at the operation, and admitted that he took “a number of steps to improve the control environment”.
However, it argued before the tribunal that the “effectiveness of the CEO is critical to the effective oversight of the business and for that reason the FSA holds CEOs and senior managers to high standards”.
The FSA alleges that the fine was necessary because “Mr Pottage fell short of what could reasonably be expected” which it said was the “core issue for the Tribunal to determine”
It said that it was not until July 2007 that Mr Pottage acknowledged problems and only did so in response to pressure from Zurich, in the wake of further pressure from the FSA.
The case is likely to be closely watched in the City because if the regulator wins it will have a much easier task in imposing similar penalties against other managers who it deems to have failed to act properly even if they have personally not been involved in any wrong doing.
The regulator’s stance is causing concern in the City because managers feel that its demands had not been clearly set out and that the case against Mr Pottage is retrospective.
But the watchdog was harshly criticised for its perceived inertia in the run up to and during the financial crisis and this has resulted in it taking a far tougher stance since.
UBS announced losses of $2.3bn (£1.4bn), largely due to the activities of London based trader Kweku Adoboli.
Mr Pottage still works at UBS, although not in a management role. The bank was itself hit with a fine of £8m in relation to “the extensive systems and controls failings specific to the London International part of UBS Wealth Management in August 2009. The FSA has alleged that these failings meant a serious fraud as a result of unauthorised trading on the wealth management desk was not prevented. The scandal led to four employees being fired, while 39 accounts were affected and compensation of $42m paid out to date.
UBS said it had acknowledged the problems and taken action with independent help.
“This hearing relates specifically to FSA disciplinary action against Mr Pottage for alleged failings in his role as CEO of UBS Wealth Management UK during the period from September 2006 to July 2007. UBS does not believe this disciplinary action is justified.”