October 16, 2012 / 6:44 PM / 8 years ago

UBS checks flawed at time of alleged rogue trades, UK court told

LONDON (Reuters) - There were flaws in control systems at UBS UBSN.VX at the time accused fraudster Kweku Adoboli racked up losses of $2.3 billion through unauthorized trades, the head of global risk at the Swiss bank told a London court on Tuesday.

Former UBS trader Kweku Adoboli arrives at Southwark Crown Court in London September 21 , 2012. REUTERS/Neil Hall

Colin Bell, global head of operational risk control at UBS, said the overall system of checks was sound but some parts of it had not operated as they should have done, partly due to human error.

When the bank’s systems sent out requests to check on deals, Adoboli had at least once been able to sign off on them himself, Bell added.

Adoboli is accused of causing the largest unauthorized trading loss in British history. The 32-year-old former trader is on trial at London’s Southwark Crown Court where he denies charges of fraud and false accounting.

His defense team have argued bosses at the bank turned a blind eye to dubious trading activities as long as profits were made and that he was not the only one involved in any alleged illicit activities.

Prosecutors say he was like a gambler, who hid his illegal activities from colleagues and was out for himself.

Bell was one of a team of four who carried out Project Bronze, an in-house investigation launched after Adoboli wrote an email to his bosses on September 14, 2011 confessing to carrying out unauthorized trades.

Bell said their six-day inquiry had been to find out what happened and whether the bank had adequate controls in place.

Charles Sherrard, representing Adoboli, put it to him that there were systemic failings.

“I would characterize it differently,” he said, telling the court that while the design of the overall control framework was sound, there were flaws in the detail of the controls.

Asked if this was human failure or because the systems were not fit for purpose, he replied: “There were elements of both.”

Earlier, he said a system to check the veracity of trades whose settlement dates had been extended had failed to work twice since it was introduced in 2008.

It was not working at the time between June and September 2011 when Adoboli is accused of making the substantial losses, and had not operated since November 2010, Bell said.

Likewise, a supervisory system to check trades which appeared not to tally with balance sheets was also not working. Instead of reports being sent to the supervisor of Adoboli’s Exchange Traded Funds desk, they were going to others including those on the desk itself.

On August 26, 2011, one such report was passed to Adoboli himself, meaning he was able to sign off trades that were later investigated.

However, Bell rejected suggestions that UBS had failed to address whether others at the bank might have been involved in unauthorized trading.

He said KPMG had carried out a independent probe involving up to 30 people which looked at some 2.4 million documents, 4 million transactions and carried out 170 interviews.

“Nothing I have seen or read in any of the reports I have looked at suggests others had involvement in that activity,” he told the court.

The trial continues.

Reporting by Michael Holden; Editing by Andrew Heavens

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