FSA loses bid to fine UBS banker for controls failure

The Financial Services Authority (FSA) has lost a case in which it tried to fine a UBS executive £100,000 for control failings that led to unauthorised trades at the bank.

The case, the first of its kind, attempted to punish the senior manager for systems and control failings that occurred under his watch, even though he did not commit the fraudulent activity himself.

John Pottage, the former CEO of UBS’s London-based wealth management business and currently a senior executive at the bank’s headquarters in Zurich, had challenged the fine in November, arguing that he did not deserve the fine because he had worked to improve the business’s systems and controls.

In a judgment seen by the Financial Times, however, the London Upper Tribunal for Financial Services ruled in favour of Pottage, and said that he had “acted reasonably”.

It said that “the FSA has not established its case that Mr Pottage had committed misconduct”.

The fine was connected to a case that took place a number of years ago, before rogue trader Kweku Adoboli allegedly ran up a $2 billion (£1.3 billion) loss on UBS’s derivatives desk, which was also undetected due to insufficient internal controls.

In November 2009, the FSA issued an £8 million fine to UBS after system and control failures at the bank enabled employees to make around 50 unauthorised trades a day, using money from at least 39 customer accounts.

The unauthorised transactions took place in 2006 and 2007, and only came to light after a whistleblower at the bank raised concerns. Four UBS staff were sacked, and the bank paid out £26 million ($42 million) to customers in compensation.

Pottage was not being accused of taking part in the illegal trades or of knowing about them.

Copyright © 2012 IDG Communications, Inc.

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