Spot the fault line

The Financial Services Authority (FSA) has fined UBS £29.7m ($47.6m) for failings that led to trader Kweku Adoboli losing £1.4bn.

The regulator fined UBS for "system and control failings" that allowed him to trade in London well beyond authorised limits.

The FSA, which conducted the investigation into failings at the bank with its Swiss counterpart, Finma, said there were serious weaknesses at the Swiss bank.

It said in a statement: "UBS failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, and failed to conduct its business from the London Branch with due skill, care and diligence."

In the financial markets exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”.

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet.

What’s the worst that could happen following a spectacular flame out?Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high.

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse.

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances.

What is required is that the senior management spend less time forecasting their own bonus and more time scrutinising the bottom line and understanding how results are achieved. Until this balance is in place disasters in the financial system will continue to occur.