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UK watchdog fines UBS over trading scandal

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11/26/2012 | 12:29pm CEST

UBS was fined 30 million pounds ($48 million) by Britain's financial watchdog and put under extra scrutiny by its Swiss counterpart over failings that allowed a rogue trader to lose $2.3 billion.

Announcing the fine on Monday, the director of enforcement at Britain's Financial Services Authority (FSA) said the Swiss bank's risk control systems were "seriously defective."

Kweku Adoboli, a trader on UBS's Exchange Traded Funds desk in London, was jailed for seven years last week after admitting trading far in excess of authorized limits in the biggest fraud in British history.

"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 FSA's Tracey McDermott said.

In a separate announcement, the Swiss financial regulator Finma said it was examining whether UBS should increase capital to back its operational risks. A Finma spokesman declined to elaborate.

Espirito Santo Investment Bank analyst Andrew Lim doubted whether the Swiss regulator would push UBS to raise more capital because the bank was already in a strong position.

"The fine is immaterial and the steps on the capital front are also immaterial because they are so well capitalized," Lim said.

"Finma is just doing a 'belt and braces' approach and showing they are at the forefront on being tough on regulation," he added.

Since the government bailed out UBS during the 2008 financial crisis, Switzerland has drawn up tough new capital standards for its two global banks - UBS and Credit Suisse - that go beyond the new Basel III global rules.

UBS said on Monday it had made progress over the past year "reinforcing our position as one of the most financially sound global banks."

In its annual report, UBS said it increased its risk- weighted assets for operational risk to 58.9 billion Swiss francs ($63.36 billion) on December 31, 2011 from 51.9 billion francs a year earlier as agreed with Finma after the trading scandal.


The Swiss regulator on Monday said it is appointing an independent investigator to see whether the action UBS is taking to put things right after last year's scandal is proving effective.

Finma said the bank's control functions had been based too much on trust and that it had sent misleading signals by awarding bonuses and pay rises to Adoboli, even though he had breached the rules.

UBS said it accepted the regulators' findings and the penalties, adding it was pleased that the regulators had acknowledged the steps the bank has taken including disciplinary action against staff.

UBS Chief Executive Sergio Ermotti, installed after Oswald Gruebel stepped down over the scandal, announced a major restructuring last month to wind down large, risky parts of its investment bank.

Those changes will help UBS cut its total capital requirements under the Basel III rules to 17.5 percent from 19 percent.

Shares in UBS were down 0.6 percent by 0601 EDT compared with a 0.9 percent lower European banking index.

(Editing by Emma Thomasson and Erica Billingham)

By Caroline Copley

Stocks treated in this article : Credit Suisse Group AG, UBS AG
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