Outsourcing failure blamed for $2.3b loss by UBS trader

Tags: Companies

Banking giant fined £29.7m for not preventing unauthorised trading

Key controls for “detection of suspicious trading activity” failed at an India outsourcing unit, contributing to $2.3-billion loss caused by a rogue trader of global banking giant UBS, a joint probe by British and Swiss regulators has found.

This is the third instance when outsourcing of key oversight jobs by global banks (British giants HSBC and Standard Chartered being the other two) to India has come under the regulatory scanner abroad for ineffective controls against suspicious financial transactions.

UK’s Financial Services Authority (FSA) fined UBS £29.7 million (about Rs 265 crore) for failing to prevent large-scale unauthorised trading in this case, while Swiss regulator FINMA (Financial Market Supervisory Authority) also said it has found serious risk management deficiencies and major control failures at the bank.

In its probe report, FINMA said that UBS’ back office operations team was responsible for ensuring timely confirmation of deferred-settlement trades, identified through “a specific report maintained by an outsourcing provider based in India (the ‘T+14 report’)”.

The probe found that the bank’s online trade supervision system SCP (Supervisory Control Portal) and the ‘T+14’ report were key controls for the detection of suspicious trading activity, but both proved to be ineffective.

“The failures of these controls serve to illustrate poor organisation and risk management within UBS,” FINMA said.

FSA and FINMA jointly initiated a probe in September 2011 after it came to the light that a London-based trader of Swiss banking major had caused substantial losses totalling $2.3 billion (about Rs 13,000 crore) due to unauthorised trading on the bank's Exchange Traded Fund (ETF) desk.

EDITORIAL OF THE DAY

  • Mob rage against the Tanzanian woman betrays racial and gender prejudices

    The mob rage in Bangalore against the Tanzanian woman is a national disgrace from which we can never recover even if we punish the wrong doers.

FC NEWSLETTER

Stay informed on our latest news!

TODAY'S COLUMNS

Sachin Shridhar

VIPism is casteism by another name

Much has been written and lamented about the all-pervasive VIP ...

Zehra Naqvi

‘What if the British never came to India?’

Legendary Canadian writer Margaret Atwood proves as elusive to the ...

Bubbles Sabharwal

It's the life in your years that counts

We are all in a sense pilgrim souls enjoying the ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture