UBS and rogue-trading: an insight into prevailing regulation

UBS was recently fined £29.7m for breaches of Principle 2 (due skill, care and diligence) and Principle 3 (risk management systems and controls) in consequence of the much-publicised rogue-trading activities of trader Kweku Adoboli.

Amongst other things, the FSA found that UBS operated "ineffective" and "deficient" risk management IT systems; the main focus of the relevant members of the Operations Division had been facilitation, as opposed to risk control; there had been inadequate front office supervision; risk limits had been breached without any related sanctions; and there had been a failure to investigate the underlying reasons for the substantial increase in profitability of Adoboli's desk.

Macfarlanes' financial services team uses the incident to debate the primary function of the Operations Division and firms' responses to breaches. Lastly, the white paper explains why the UBS Final Notice emphasises the importance placed by the FSA on an institution's first line of defence.