A UBS executive is challenging the Financial Services Authority over a £100,000 fine being imposed for control failings that led to unauthorised trades at the bank.
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, worked to improve the business’s systems and controls and does not deserve a fine, according to court papers filed by his lawyer Guy Philipps.
"A number of control failures occurred in the back office of the business. Mr Pottage is not said to have been in any way responsible for those control failures," said Philipps at a court hearing in London yesterday.
The fine is 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 is not being accused of taking part in the illegal trades or of knowing about them.
The FSA said UBS had “failed to manage and control the key risks” associated with its wealth management business model. In spite of several warning signs that the bank’s systems and controls were inadequate, it did not implement “effective remedial measures”.
The regulator also criticised UBS for failing to properly supervise its customer-facing staff.
Pottage failed “to carry out an adequate initial assessment” of the division’s business practices and to monitor them, the regulator said.
“If he had done so he would have identified serious flaws in the design and operational effectiveness of U.K. wealth- management’s governance and risk management frameworks,” the FSA said in a court filing.
Pottage “strongly denies” the charge that he did not act quickly enough so that a more thorough investigation of the weaknesses in the bank’s controls could be carried out, and “is supported in that denial by UBS, of which he remains a senior executive,” Bloomberg reported.
The bank, as an “interested party”, said: “UBS does not believe this disciplinary action is justified.”
“UBS had identified the weaknesses before the regulatory action was taken, and had remediated them by June 2009, as was confirmed by an independent accountancy firm.”
Meanwhile, Adoboli is scheduled to enter a plea at a London criminal court next week.