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Watchdog to probe UBS after 'fraud'

The City watchdog has launched an investigation into why UBS failed to spot allegedly fraudulent trading which has cost the Swiss banking giant £1.3 billion.

The Financial Services Authority and its Swiss counterpart have ordered a "comprehensive, independent investigation" into the events surrounding trading losses at the bank's London operations.

On Friday UBS trader Kweku Adoboli wept in the dock as he appeared in court accused of fraud and two charges of false accounting, one of which dated back to 2008. The 31-year-old was remanded in custody to appear again at City of London Magistrates' Court for a committal hearing.

On Friday night the FSA and the Swiss Financial Market Supervisory Authority said a third party would investigate the details of the alleged unauthorised trading activity and why the activities remained undetected. It will also assess the overall strength of UBS's controls to prevent fraud.

The alleged fraud offence took place between January 1 and September 14 this year, the court heard. The fraud charge against him read: "While occupying a position, namely being a senior trader with Global Synthetic Equities, in which you were expected to safeguard, or not to act against, the financial interests of UBS Bank, you dishonestly abused that position intending thereby to make a gain for yourself, causing losses to UBS or to expose UBS to risk of loss."

The two accusations of false accounting - that he "falsified a record, namely an exchange traded fund transaction" - occurred between 2008 and 2009 and between January and September this year. Adoboli's lawyer Louise Hodges made no application for bail for her client, from Clark Street, Bethnal Green, east London.

Speaking from Wroclaw, Poland, Chancellor George Osborne said the case highlighted why the Independent Commission on Banking's far-reaching plans to shake up the banking sector are right for Britain. The ICB proposals, which were announced on Monday, include ring-fencing banks' high street divisions to protect them from riskier investment arms.

Mr Osborne told Sky News: "It is a shocking case. Obviously we will wait for the full details of it to emerge, but it is pretty clear that totally unacceptable things were going on in UBS and our regulator is looking into it at the moment and indeed the police are looking into it.

"I draw two lessons. One is we need a better system of regulation, and that is why the British Government is proposing to give to the Bank of England much greater powers of supervision, so it can look across the piece at issues of stability and proper conduct in our banking system, and indeed we will have a financial conduct authority specifically looking at market abuse.

"But also I take the lesson that John Vickers drew to our attention a few days ago which was: how do you protect retail banking from those kinds of activities in investment banking that we saw at UBS this week? If you ever wanted a better example of why the kinds of ideas that John Vickers was putting forward were right for Britain, look at what happened at UBS just a few days later."

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