UK regulator decision to fine NRI financial advisers upheld

The former UBS advisers are accused of irregularities in their dealings with a 'major' Indian entity

A British tribunal has asked financial sector regulator FSA to ban and penalise two Indian-origin advisers, who worked with Swiss banking giant UBS, for irregularities in their dealings with a "major" Indian entity.

The Financial Services Authority (FSA) has been asked by the tribunal to fine Sachin Karpe 1.25 million pounds and Laila Karan 75,000 pounds and to ban them both from performing any role in the UK financial services sector, FSA said today.

While the FSA order did not name the "major" Indian client, a spokesperson for Anil Ambani led Reliance Group said in a statement that "the matter relates to regulatory action by the FSA in the UK against former employees of UBS, and not against any Reliance entities or Ambani or his family".

The Upper Tribunal (Tax and Chancery Chamber) has directed the FSA to take these actions against the two "for failing to act with integrity", breaching the regulations and for not being "fit and proper persons" for the business.

"There are no charges levelled against any Reliance entities or Ambani or his family in these proceedings, and they were neither parties to the proceedings, nor represented therein," the Reliance Group spokesperson said.

"These matters are five years old, relating to 2007, and so far as Reliance entities are concerned, these have already been dealt with and closed by the Indian regulators in January 2011, under the consent framework, as was widely reported at that time," the statement said.

Karpe and Karan worked at an Asia Desk of UBS that provided services to customers residents in India or of Indian origin, the FSA said. Karpe set up an investment structure that enabled a "major" Indian client to breach India law, it added. The client had apparently made an investment of USD 250 million in this fund.

The Reliance Group further said in its statement that "the the investments referred relate to corporate transactions of Reliance Infrastructure Ltd and Reliance Natural Resources Ltd, and not of Ambani personally or his family".

"The entire funds deposited by Reliance Infrastructure and Reliance Natural Resources with UBS have been repatriated back to India nearly 4 years ago in 2008, and the relevant accounts duly closed," it added.

It also said that "there is no loss caused to Reliance Infrastructure or Reliance Natural Resources in this regard, and no impact thereof on the Reliance Group or its business or operations.

"UBS had accepted the weaknesses in its internal systems and processes, leading to a large number of unauthorised actions by these employees in relation to a large number of its customers, including inter alia unauthorised transactions of which Reliance was not aware. UBS has also settled the matter in the UK by payment of a fine".

Between January 2006 to January 2008, Karpe was Desk Head, and between February 2007 and January 2008, Karan worked as a Client Advisor on this Asia Desk, reporting directly to Karpe.

During the period Karpe carried out substantial unauthorised trading, predominantly in forex instruments, with a gross value of billions of pounds across 39 customer accounts, the FSA said.  

He also made unauthorised transfers and loans between client accounts in order to conceal losses arising from the unauthorised trading. He directed others (including Karan) to assist him in arranging the transfers and loans, and creating false documentation for the unauthorised trading.  His scheme resulted in substantial losses for 21 customers.

UBS has since paid compensation to the affected customers in excess of $42 million, the FSA said.

Karpe also established an investment structure to enable a major (Indian resident) customer (via an investment fund incorporated in Mauritius) to breach Indian law in clear contravention of UBS guidelines, the agency said.  

Ultimately, the customer invested over $250 million in the fund. Karpe deliberately and repeatedly misled compliance in order to accommodate his customer. Karpe also misled UBS and senior management about paying compensation to a customer using monies from another customer account, the FSA said.  

The Tribunal found that: "Karpe induced others serving on his desk to participate in what was an obviously dishonest  course of conduct...

"We infer that the whole motivation was to benefit him indirectly and in the long term by obtaining new clients through his apparent prestige, increasing funds under management and thereby advancing his career and increasing his bonuses".  

The FSA said that Karan did not instigate the unauthorised trading; however, she was aware that unauthorised activity was occurring on some customer accounts for which she was responsible.  

Between February 2007 and January 2008, rather than escalating this knowledge (to the authorities), Karan assisted Karpe in concealing the unauthorised activity, the FSA added.  

The Tribunal noted that: "We recognise that Karan had been placed in an extremely awkward situation through the manipulation of Karpe. The fact, however, is that over and over again she chose to go along with and, on occasions, to facilitate Karpe's wrongdoing".  

Tracey McDermott, acting director of enforcement and financial crime, said: "Karpe exploited and abused his position of trust, and persuaded more junior employees to engage in misconduct to assist him...".