UBS fined for letting employees gamble with client cash

Global financial services group UBS has been fined US$13.2 million by the UK’s top financial watchdog, because the bank failed to put in place safeguards to prevent its employees from using client funds to made unauthorised trades.

Bloomberg has reported that the Financial Services Authority has fined UBS after the Swiss-based lender failed to prevent four employees in its wealth management department in London from using client money to make as many as 50 bets a day on currency and commodity markets. The trades, which were made without the authorisation of the clients to whom the funds belonged to, occurred between January 2006 to December 2007, the report said.

In fining UBS, the FSA has said it applied a 20 per cent discount on the original penalty of US$16.5 million because the bank had settled the investigation early.
The watchdog said that the bank’s bonus policies contributed to the violations because it created a conflict of interest between an employee’s personal interests, and its compliance obligations. According to the UK financial watchdog, investigators found that the four employees, one of which headed a desk in bank’s wealth management teams, would make the trades without informing clients during this period.

If there were any profits or loss from the trade, this would then be evenly allocated to the accounts from which the money came from. If there were shortfalls in some accounts, other customers would be persuaded to lend so that it can be concealed, the FSA said.

“These employees were able to take advantage of UBS’s inadequate systems and controls, giving them free rein to make unauthorised trades with customer money that they were then able to conceal,” said the FSA’s enforcement director Margaret Cole.
The FSA has not said whether it would bring penalties against the individuals who made the trades, but added that the employees concerned no longer worked at the bank.
“UBS deeply regrets this incident and having fully cooperated with the FSA’s investigation, we are now pleased that this matter has been settled so that we can move forward,” a spokesperson for UBS said.