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FSA penalizes UBS for failing to control unauthorized trading

The UK Financial Services Authority (FSA) has imposed a penalty of £29.7m against UBS over systems and controls flaws, which allowed an employee to carry out unauthorized trading, subsequently causing $2.3bn losses.

The market watchdog found that between 1 June 2011 and 14 September 2011, unauthorized trading was carried out on the Exchange Traded Funds Desk in the Global Synthetic Equities (GSE) trading division from UBS London branch.

During the aforesaid period, there was significant control breakdowns, with lesser focus on the key risks associated with unauthorized trading within the GSE business conducted from the London Branch.

FSA believes that UBS failed to organize and control its affairs with adequate risk management, even after identifying the breach and consequently allowed the trading to remain concealed for a longer period of time.

FSA director of enforcement and financial crime Tracey McDermott said, "Failures of this type in firms of the size and standing of UBS not only damage the firms concerned but also wider confidence in the integrity of the markets and the financial system."

The Swiss bank has agreed to settle the case at an early stage, subsequently availing 30% discount under the FSA’s executive settlement procedures; otherwise the fine would have been £42.4m.

The lender has also agreed to appoint an independent firm to carry out an inquiry into the unauthorized trading incident.