A UBS trader, Kweku Adoboli, has been arrested by Scotland Yard for “suspicion of fraud by abuse of position” in relation to a series of trades. The Zurich-based bank lost 10% of its value in stock trading after the incident.
The entire trading desk has reportedly been sent home while the investigation continues.
The bank has said little, other than to announce the facts, stress that the trader violated internal guidelines, assure clients that no client accounts have been affected, and that an investigation is under way.
Rogue employees can affect companies in dramatic ways. When they can affect companies this much, one needs to consider the different ways in which controls can be exercised. Internal controls are a good line of defence, but by no means a complete strategy. Solid management, clear reporting, risk reviews, and a host of other techniques become more important as the risks become bigger.