FSA's insistence on senior management responsibility tested before the Tribunal

05 December 2011

Two years on from the FSA's £8 million fine of UBS AG for systems and controls failures in breach of Principles 2 (skill, care and diligence) and 3 (adequate risk management systems)

The former Chief Executive, John Pottage, is reportedly challenging his £100,000 fine proposed by the FSA for the role he is alleged to have played in UBS' failings.

During the period between January 2006 and December 2007, as a result of concerns raised by an employee, UBS AG discovered that certain of its employees on one desk in the international wealth management business had been involved in unauthorised foreign exchange and precious metal trading across 39 customer accounts. The actions of these employees caused losses to customers who have since been compensated by UBS for in excess of US$ 42.4m.  Whilst UBS AG was fined £8m, John Pottage is said to have been the first individual fined by the FSA, not for his own wrongdoing, but for failing to supervise his team.

At a Tribunal hearing in November, UBS AG stated that it did not believe the disciplinary action against John Pottage was justified. UBS stated it had identified the weaknesses before regulatory action was taken and remedied them by 2009 which was confirmed by an independent accountancy firm.  Mr Pottage's challenge goes to the heart of the principle that a manager can be punished if he does not adequately supervise his team.

The Tribunal hearing is due to conclude this month. We await its decision with interest.

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