Last week the FSA ruled on the UBS rogue trader case and fined the bank some £30 million (for detail see: http://www.fsa.gov.uk/static/pubs/final/ubs-ag.pdf). For those who work in a bank, I would suggest reading this in its entirety. Having read it, a few overarching points come to my mind.
Failure to learn: Points 17 & 19 remark how the FSA expects firms to learn from issues in the market and from within their own firm. It judged that UBS had not learnt from the Societe Generale rogue trader issue, in spite of FSA circulars and in addition, UBS had also failed to learn from an incident in its private bank relating to poor controls.
Oversight Role of Ops & Product Control: the report suggests that there was too close a relationship between Operations and the Front Office. Too much focus on just accommodating the desk and fixing breaks, rather than any questioning. Now, I have to say that I only partly agree with the report. Ops do need to fix breaks, agreed, but I don’t think they can or will see everything. Product Control appear to have allowed $1b plus P&L adjustments without any scrutiny. They and Ops should both have a sense of what is normal in the business. The FSA were not so clear about this and it is a topic I have Blogged about before. In this case there were a lot of breaks and a lot of tickets with future value dates; I am not an insider, so I don’t know the exact numbers, but I’ll make a modest bet they were not normal.
Asking Questions: the front-office were it seems all too happy to just take the profits. Similarities to the Jett / Kidder Peabody case abound. If a metric has changed dramatically, it needs understanding and explaining. In this case profits went up by something like 4x.
Lessons Learned: Good operational discipline. It was missing here. Have a solid set of procedures, follow them and irrespective of what is actually written down, you must have a sense of “normal” in the business you are in.
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