More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The board of UBS met in Singapore on Friday to consider what will be the future of the Swiss giant after trader Kweku Adoboli allegedly lost $2.3 billion in fraudulent activities. The future of its CEO, Oswald Greubel, also hangs in the balance.
Reuters reported that Greubel, who refused to step down after the fraud was uncovered, was expected to have pleaded his case with the board to remain at the helm of the troubled bank and to be allowed to continue his "integrated banking" strategy, which would maintain the investment bank he championed when he took over in 2009.
Gruebel, himself a former trader, was said to have emphasized throughout the week that the investment bank was a major part of the future of UBS—despite investigations by both British and Swiss authorities into how Adoboli managed to evade compliance to such a degree.
UBS suffered from exiting depositors during the financial crisis; deposits fell by nearly 400 billion Swiss francs ($442 billion), amounting to nearly 20% of total client assets, as the company suffered through subprime losses, the largest annual corporate loss in Swiss corporate history. UBS also had an extended run-in with U.S. tax authorities.
Although it has since returned to positive inflows, in the wake of this latest scandal its fate is by no means certain as investors clamor for strategies that range from downsizing to firewalling risky trading to providing better security for its wealth management operations.
It is expected that Gruebel will reduce the amount of proprietary trading and fixed income activity at the company, without eliminating them altogether. But risk supervision will have to be beefed up, and, indeed, Gruebel and his whole management team, and their attention to compliance, are under scrutiny.
A similar, even larger scandal at Société Generale three years ago, in which rogue trader Jerome Kerviel lost 4.9 billion euros ($6.6 billion), cost Daniel Bouton, then SocGen's chairman and CEO, his job amid calls for stronger regulation.
Florian Esterer, senior portfolio manager at Swisscanto, which manages about 57 billion Swiss francs ($63 million) and holds approximately $170 million in UBS shares, was quoted in the report saying, "They need to complete the internal investigations first. It's not necessary to call for heads to roll yet, we need more detail for that—and it's not clear who could take over anyway. The board is in a bind because it is not sure anyone could realistically take over from Gruebel at present."