Thursday, the Financial Services Authority of U.K. said it levied a penalty of £8 million on UBS AG (UBS) as the bank failed to prevent four of its employees carry out unauthorized foreign exchange and precious metals transactions involving customer money on at least 39 accounts.
The Financial Services Authority of U.K., or FSA, said that the unauthorized activity, which took place between January 2006 and December 2007 at UBS' London-based wealth management business, only came to light when an employee raised concerns internally.
Upon further investigation, it was discovered that UBS employees had taken part in the trading of foreign exchange and precious metals using customer money without authorization and allocated losses to customers' accounts. An internal UBS investigation estimated that as many as 50 unauthorized transactions a day were taking place at the operation's peak.
FSA notified UBS that the bank breached Principle 2 by failing to conduct its international wealth management business from the London Branch with due skill, care and diligence and breached Principle 3 by failing to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems.
In particular, in relation to its London Branch international wealth management business, UBS failed to adequately manage and control the key risks, and the level of risk, created by the international wealth management business model, said FSA.
FSA also blamed the bank for its failure in having an appropriate level of supervision over and challenge to customer-facing employees, and to challenge appropriately those in customer-facing and revenue-generating roles.
According to FSA, UBS also failed to produce management information sufficient to enable senior management to assess the effectiveness of controls designed to mitigate the key risks/level of risk; and also failed to implement effective remedial measures in response to several warning signs that occurred during the course of its business suggesting that the London Branch's international wealth management business' systems and controls were inadequate.
The £8m fine is the third largest the FSA has ever imposed. UBS agreed to settle FSA's investigation at an early stage meaning it qualified for a 20% discount. Without the discount, the FSA would have imposed a financial penalty of £10 million.
Customers who have incurred losses due to the unauthorized transactions, have since been compensated by UBS. To date, UBS has paid compensation in excess of US$42.4 million to affected customers.
The financial penalty must be paid in full by UBS to the FSA no later than 19 August 2009, 14 days from the date of the Final Notice.
UBS is currently trading at US$16.58, up US$0.16 or 0.97%, on a volume of 2.55 million shares on the NYSE.
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