FSA loses UBS test case
Regulator denied right to penalise inadequate supervision
The Financial Services Authority has lost a test case which it was pursuing over the right to penalise senior managers when things go wrong on their watch, the Financial Times reports.
The FSA was seeking to fine a UBS manager, John Pottage, £100,000 over a series of compliance problems at the company which he was not personally involved in. This was the first time the authority had tried to penalise a manager over something other that actual misconduct – Pottager was the manager of the bank's wealth management division, which experienced "a £600,000 payment fraud, misuse of client money, a failure to pay UK withholding tax and a rogue trading incident".
According to the judgment seen by the FT, the tribunal rejected the FSA's case, saying that Pottage had taken steps to bolster UBS’s systems and controls. The sort of misconduct the FSA was alleging includes sharing passwords, and saving sensitive files on public databases, and the QC for the FSA told the tribunal that Pottage "failed to take reasonable steps to identify and remedy these serious flaws".
The regulator's main argument was that Pottage should have undertaken a "root and branch" review of the bank's operations as soon as he took over, rather than delay until after the problems had already occurred or been uncovered.
Pottage's barrister argued that:
A number of control failures occurred in the back office of the business. Mr Pottage is not said to have been in any way responsible for those control failures. And he took prompt and effective steps, as his regulatory obligations required him to do, to ensure that each of them was properly investigated and rectified.