Did UBS shirk on "separation of duties?"

Erik submitted this today:

I just read an article about the UBS trading scandal, http://www.economist.com/node/21530113.

After reading the article, my initial thought was that people who work in the back office of a bank and know how the accounting works for trades should not be allowed to make trades. This is what happened at UBS. The trader started off his career at UBS by doing the accounting for trades. He then got promoted to a trading desk and used his knowledge of the accounting treatment for trades to make unauthorized trades and cover them up through accounting. This raises another question, where were the internal controls? The trading desk the trader was on was a Delta One desk, where the trades are supposed to be the least risky. Basically, I think this scandal occurred due to two reasons; allowing people with the accounting knowledge to cover up trades to make unsupervised trades and failure of internal controls to check the trades that are made. What do you think?


About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.


  1. I agree, basic application of accounting auditing concepts like preventative and detective internal controls and segregation of duties would have prevented this scandal from occurring for UBS. At least two sets of eyes should be involved for these types of transactions.

  2. It seems to me that UBS’s internal controls are at fault here. As the article says, other large investment banks make sure that trades for such large amounts are double checked, even when they are not required by regulation. I wonder if they will find collusion of any sort since such a large amount of fraud was able to slip through the cracks.

  3. I think there is nothing wrong with putting someone from back-office to work in the front-notice. The real deficiency comes from internal control, or lack thereof. To say that a person with back-office experience should not trade is the equivalent of saying that a person who is has a background in IT should not be allowed to make trades because they could delete or manipulate data if something goes wrong.I think it's the individual's fault, his superiors', and lack of internal control from UBS.

  4. UBS should have had better controls for seperation of duties in place. While I am all for people moving up in a company, I do not think that he should have been allowed to make trades being that he knew the back office accounting procedures. The only way that he should have been able to make trades is if those trades had been supervised.

  5. Instances of fraud of this nature makes you wonder if it was the right decision by President Clinton to repeal the Glass–Steagall Act, since this act provided for the safer and more effective use of bank assets, implemented regulations for interbank controls and prevented the excessive diversion of investors’ funds into certain operations.The repulsion removed the need to avoid conflict of interest between investment bankers serving as officers of commercial banks, which allowed Mr Adoboli to work in the back office of UBS and then to trading desks, “working in an area known as Delta One, a part of the bank meant to provide clients with derivatives and other exposures to shares without risking the bank’s own money.”I believe this Act would have made it a little harder for Mr. Adoboli with his knowledge of the commercial banking because UBs would have been mindful of his knowledge of the inner workings of the bank before offering a position in investment banking.

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