The UK’s Financial
Services Authority (FSA) is locked in a tribunal case against two
ex-employees of UBS’s UK wealth management business whose alleged
“serious misconduct” led to UBS paying out more than $42m in
compensation to its clients.
The alleged misconduct centred around a series
of unauthorised trades on customer accounts between 2006 and
2007.
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It comes as the Swiss based bank battles to
restore its risk and compliance reputation in the wake of the £2bn
($3bn) trading scandal at its UK investment bank in September.
This month, UBS’s chief risk officer Maureen
Miskovic was replaced by her predecessor Philip Lofts after less
than a year in the position. Lofts previously held the chief risk
officer’s position at UBS between 2008 and 2010.
Risk culture in question
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By GlobalDataThe tribunal case involves Sachin Karpe,
former desk head of the Asia II desk, and Laila Karan, a former
client adviser on the Asia II desk, at UBS’s wealth management
international business department in London (UBS WM).
Following a hearing before the FSA’s
Regulatory Decisions Committee, the FSA fined Karpe £1.25m and
Karan £90,000. Both individuals also received full prohibitions
from the FSA.
Both Karpe and Karan are contesting the FSA’s
case against them and the size of the penalties imposed on
them.
The FSA has made six allegations against
Karpe. The most serious allegation is that he carried out
wide-ranging unauthorised trading on various client accounts. Karpe
also allegedly orchestrated the movement of funds between client
accounts to disguise losses, which had arisen as a result of the
unauthorised trading.
Unauthorised trades on 39 client
accounts
Meanwhile, the FSA alleges that Karan was
involved in four areas of related misconduct.
For example, she allegedly signed a number of
UBS documents which purported to record the client’s approval of a
number of foreign exchange transactions on the account and
transfers to the accounts of other, unconnected UBS clients,
without having received instructions or authorisation directly from
the client, and being aware that improper activity was taking place
on this account.
The misconduct involved unauthorised
transactions involving customer money on at least 39 accounts. As
many as 50 unauthorised transactions a day were taking place at the
operation’s peak.
PBI contacted the lawyers representing Karpe
and Karan for comment on the FSA allegations. Karan’s lawyers
declined to comment. PBI had not received a response from Karpe’s
lawyer at the time of going to print.
UBS supports action against
ex-employees
In November 2009, the FSA fined UBS £8m for
“management failures” in connection with Karpe and Karan’s
misconduct. At the time, the UK regulator said the Swiss-based bank
had failed to control key risks and supervise customer-facing
employees properly.
Commenting on the case, UBS said it has
already acknowledged there were weaknesses in certain aspects of WM
UK’s control environment.
In a statement, UBS said: “WM UK has already
paid a significant financial penalty to the FSA in respect of those
control weaknesses. 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.”
“The proceedings taking place now relate to
two former UBS employees from the international wealth management
business of WM UK. UBS supports the action being taken by the
FSA.”
A fourth individual, Andrew Cumming, also
worked as a client adviser on the Asia II desk and, according to
the FSA, was involved in some of the misconduct alleged to have
been carried out by Karpe and Karan.
Cumming has already been sanctioned by the FSA
for his conduct. However, since he did not dispute the FSA’s case
against him, there is no reference before the tribunal regarding
his conduct.
Betrayal of trust
Commenting on the importance of trust in the
wealth management sector, Bruce Weatherill, chief executive of
Weatherill Consulting, said that in the post-credit crunch
environment, all wealth managers are re-addressing how to become
more client-centric.
Weatherill said: “Having a longer-term
relationship with your banker is something that needs to be
rewarded. I think all private banks are trying to do that.”
The FSA’s tribunal hearing is ongoing. A final
decision on Karpe and Karan’s case is expected around the end of
the first quarter of 2012.
