Feeds

Outsourcing fingered as UBS cops £30m fine

Rogue trader should have been spotted in outsourced report

Build a business case: developing custom apps

The perils of outsourcing have again come under the spotlight after regulators investigating the $US2.3bn loss at Swiss bank UBS pointed to key risk management failings at a third party provider based in India.

The FSA and Swiss regulator FINMA launched a joint investigation into UBS in September 2011 after it came to light that rogue trader Kweku Adoboli had incurred huge losses because he was allowed to make unauthorised trades from the London office of the bank.

The FINMA report (via PTI) explains that the bank’s operations team was responsible “for ensuring the timely confirmation of trades with deferred settlement terms”. These trades were listed on the “T+14 report” maintained by an unnamed outsourcing provider.

The report goes on to reveal that one of the main ways Adoboli hid the true risk exposure of his activities was by generating fictitious trades with deferred settlement dates on the Exchange Traded Fund (ETF) desk where he worked.

It added the following damning conclusion:

Deferred settlement trades should have been identified on the T+14 report. However, this report was non-operational between May and November 2009, and from November 2010 to September 2011 shortly before discovery of the Loss)…

The purpose of the T+14 report was to identify deferred settlement trades, as these posed a greater risk to the Bank than trades settling within the usual T+3 cycle. The importance of this report was not understood. The report failed twice, for extended periods of time, and the second failure of the report went unnoticed by UBS for approximately 10 months.

Although the outsourcing provider is clearly not solely to blame for what happened at the bank, its failings are painted as contributing factor and will call to mind other recent high profile cases from the financial world.

Back in August, New York State Department of Financial Services accused Standard Chartered of hiding $US250bn worth of secret transactions with Iran.

In a damning report, it blamed the UK bank for outsourcing key OFAC compliance processes to Chennai “with no evidence of any oversight or communication between the Chennai and the New York offices".

HSBC also came under scrutiny earlier in the summer after a US probe found issues with its own “offshoring reviewers in India”, who failed to spot issues regarding compliance with money laundering rules. ®

Build a business case: developing custom apps

More from The Register

next story
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Amazon says Hachette should lower ebook prices, pay authors more
Oh yeah ... and a 30% cut for Amazon to seal the deal
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
Chips are down at Broadcom: Thousands of workers laid off
Cellphone baseband device biz shuttered
Feel free to BONK on the TUBE, says Transport for London
Plus: Almost NOBODY uses pay-by-bonk on buses - Visa
Nintend-OH NO! Sorry, Mario – your profits are in another castle
Red-hatted mascot, red-colored logo, red-stained finance books
Twitch rich as Google flicks $1bn hitch switch, claims snitch
Gameplay streaming biz and search king refuse to deny fresh gobble rumors
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.
The Essential Guide to IT Transformation
ServiceNow discusses three IT transformations that can help CIO's automate IT services to transform IT and the enterprise.
Maximize storage efficiency across the enterprise
The HP StoreOnce backup solution offers highly flexible, centrally managed, and highly efficient data protection for any enterprise.