More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
A rogue trader could be responsible for Switzerland’s biggest bank failing to be profitable in the third quarter, after he managed to siphon off $2 billion in unauthorized trading. A suspect was taken into custody in London early Thursday morning.
Bloomberg reported that UBS AG’s executive board said in a memo to employees that management plans to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened,” and added, “While the news is distressing, it will not change the fundamental strength of our firm.” Perhaps not, but the firm’s stock fell as much as 9.6% in Switzerland on the news.
Then late Thursday Moody's Investors Service placed UBS on review for a possible downgrade over its risk control measures.
Meanwhile, The Telegraph reported that the suspect in custody was a UBS employee named Kweku Adoboli who worked in the ETF area. The police statement, which did not identify him, said, "A 31-year old man was arrested at 3.30 AM in central London on suspicion of fraud by abuse of position. He remains in custody."
Reuters reported that in its statement, the bank said, "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion." It also said that client positions were unaffected. According to the Swiss newspaper Neue Zuercher Zeitung, the losses were discovered Wednesday afternoon, and were in the equities unit in London.
In a note, Goldman Sachs analysts Jernei Omahen and Peter Skoog wrote, "This loss has the scope to have a material impact on the perception of UBS' private bank, impacting its future operating trends. Today's announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank."
Chris Roebuck, visiting professor at Cass Business School in London, was quoted in the report saying the loss was "a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to. It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not 'proper' banking, as private banking is."
Read about Moody's potential downgrade of UBS at AdvisorOne.