Swiss banking giant UBS is fined £29.7m by the City watchdog for failings which allowed convicted trader Kweku Adoboli to lose £1.4bn.
The Financial Services Authority (FSA) said procedures, management systems and internal controls at the bank’s London branch were “seriously defective”.
Adoboli was sentenced to seven years in prison after he was convicted of two counts of fraud by abuse of position.
Tracey McDermott, FSA director of enforcement and financial crime, said: “UBS’s systems and controls were seriously defective.”
She added: “As a result, Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly.
“We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm.”
UBS became aware on 14 September 2011 that unauthorised trading had taken place on the exchange traded funds desk in the global synthetic equities (GSE) trading division in London.
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The FSA, in an investigation with the Swiss Financial Market Supervisory Authority (Finma), uncovered several “particularly serious” failings which put wider market confidence at risk and allowed Adoboli to commit financial crime.
The computerised system operated by UBS to assist in risk management was not effective, the regulators said, while its trade capture and processing system had “significant deficiencies”.
Inadequate front office supervision was discovered including poorly executed and ineffective supervision arrangements within the GSE division.
Adoboli was at one point on the verge of causing losses of $12bn (£7.5 bn), and the hole he eventually left was the largest trading loss ever in British banking history.
Prosecutors claimed Adoboli – who was heavily involved in spread-betting in his spare time – was a gambler who believed he had the “magic touch”.
The 32-year-old admitted the enormous losses but claimed he was pressured by staff to take risks, culminating in a catastrophe which wiped £2.8bn off the bank’s share value.