UBS Discloses $2 Billion In Unauthorized Trades

Three years after unauthorized trading at Societe Generale,

Swiss banking giant UBS disclosed Thursday that it had lost $2 billion due to unauthorized trading, and British police arrested the suspected trader on fraud charges.
UBS has discovered a loss due to unauthorized trading by a trader in its investment bank. The matter is still being investigated, but UBSs current estimate of the loss on the trades is in the range of $2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011, according to a statement released by the bank. It added that no client positions were affected.
UBS discovered the unauthorized trades on Wednesday, and contacted police, who arrested a 31-year-old man in London at 3:30 a.m. Thursday, on suspicion of fraud by abuse of position, said commander Ian Dyson of the City of London Police, in a statement.
The man, who remains in custody, has been named in
news reports
as Kweku Adoboli. According to his LinkedIn profile, hes the director of
exchange-traded funds
and
Delta One
--a complex form of derivative trading--at UBS Investment Bank in London. Adobolis boss, John Hughes, resigned on Wednesday, according to
news reports
.
The timing of the unauthorized trades is potentially awkward for the bank, since on Thursday, the Swiss parliament was due to debate tighter regulations for UBS and Credit Suisse Group, over concerns that the banks have become too big to fail.
The failure of UBS to catch the unauthorized trading is surprising since in 2008, rogue trader Jerome Kerviel at Societe General had used stolen passwords to
hide Delta One trades
that ultimately resulted in $7 billion in losses for the French bank. Ultimately, in October 2010, Kerviel was fined and jailed for three years. Furthermore, Kerviel is far from the only
rogue trader
to have bedeviled a financial institution in recent years.
While its not clear how the UBS trades took place, the risk management of UBS obviously failed, said Martin Kuppinger, principal analyst at market researcher KuppingerCole, which focuses on identity management and information security, in a
blog post
.
Did some people cooperate? Did the risk management system specifically for that type of transactions fail? Or has it been an access management problem like at SocGen some time ago, where the trader was able to control [it] himself? he said. Whatever the reason is, the incident proves that there is still a long way to go in risk management and overall GRC--not only in the finance industry.
Shorthand for
governance, risk, and compliance
, GRC refers to a set of business practices designed to
measure and report
on various risks facing a business. Specifically, GRC focuses on governing an organizations management, business, and IT decisions. Its also meant to manage risks to the business, be they business-related, involving finances, or technology. Finally, GRC is meant to demonstrate compliance with whatever regulations the business must comply.
But too many businesses may not be taking a crucial next step, from not just having policies, but also the correct tools in place to automate and enforce them. Most large enterprises today have risk, compliance, and privacy policies in place to govern processes for access, sharing, and storage of sensitive corporate information, yet as the growing number of public breaches can attest, policies alone are not the answer,
according to
business ethics and compliance advisor Michael Rasmussen of Corporate Integrity.
Security professionals often view compliance as a burden, but it doesnt have to be that way. In this report, we show the security team how to partner with the compliance pros.
Download the report here
. (Free registration required.)

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UBS Discloses $2 Billion In Unauthorized Trades