UBS AG, Switzerland’s largest bank, faces a fine of about ￡45 million pounds (US$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 receive a maximum penalty of as much as ￡50 million from the UK’s Financial Services Authority (FSA), said the person, who asked not to be identified because the fine is not yet public.
The final sanction is more likely to be closer to ￡45 million and hasn’t yet been negotiated, the person said. A fine of that amount would be the UK’s second-highest ever.
Adoboli, a former trader in UBS’ London office, was sentenced to seven years in jail on Tuesday for fraud in relation to the US$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 US$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 (US$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 last year, saying he risked US$5 billion on Standard & Poor’s 500 futures and a further US$3.75 billion in the German futures market. The 32-year-old was cleared on four counts of false accounting.
UBS has been docked by the regulator before, over unauthorized trading in its wealth-management unit in London. The bank paid an ￡8 million fine to the FSA in 2009 and agreed to reimburse customers US$42.4 million over the losses.
UBS officials believe the fine over Adoboli’s losses should not 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, one of the people said. The Swiss regulator will not issue a fine, the person said.
Additional reporting by Staff writer