Recently, UBS announced that it had terminated a former trader, who was also arrested by British police. Apparently, this rogue trader cost UBS over to $2.25 billion. UBS was in the process of eliminating a number of jobs to save money on its balance sheet, but this loss will likely wipe out the savings.
However, the real lesson from this scandal is that firms, such as, UBS, need to be ever vigilant in their compliance and regulatory programs. Such losses are hard to keep secret unless it is apparent that the person engaging in such conduct kept this information from his or supervisors. UBS will undoubtedly undergo an audit, and the findings will be used to prevent this from reoccurring. Nonetheless, many in the industry should learn from UBS’ mistakes, and pounce on the opportunity to review their compliance programs in an effort to ensure procedures are in place to detect such conduct.
In sum, firms have an obligation to not only detect this type of fraud, but to prevent it from occurring in the first instance. The only way to avoid such issues is to prepare before they occur.