UBS Fraud: Culture or Carelessness?

After a scandalous trading misstep in London, UBS (NYSE:UBS) is facing a 30-million-pound fine (USD $48 million). These fines, coming from Britain’s financial watchdog, fall on top of $2.3 billion in losses due to UBS’s “rogue trader,” as ex-trader Kweku Adoboli is now being dubbed.

Now regulators are tightening down on UBS after noting “seriously defective” risk control systems. An independent investigator is in place to keep watch on the bank and correct problem areas. Additionally, UBS’s new Chief Executive, Sergio Ermotti, plans to restructure the bank and minimize large, risky parts of its investment bank. Regulators will have their own implements with plans to restrict capital on UBS and ban acquisitions.

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The next question: will restructuring and increased watchfulness be effective against what may be a culture-level tendency to break the rules?

Adoboli has been sentenced to seven years in prison and called a “rogue trader” after far-exceeding authorized trading limits. But despite Adoboli’s rule-breaking, he had been awarded bonuses and raises at UBS before falling under government scrutiny. In trial, he claimed that his colleagues all knew how he operated, all were part of the rule-bending profit-seeking culture, and had even convinced him to apply a more aggressive trading strategy just before his massive losses — claims that his colleagues denied. These claims came only after Adoboli himself confessed to fraudulent trading.

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