October 25, 2011 - In the wake of its recent $2.3 billion loss through unauthorised trading, Swiss bank UBS has admitted that internal controls were "not effective".Today UBS posted a third quarter net profit of $1.1 billion, down 39% on the same period the previous year, after the scandal allegedly involving London-based trader Kweku Adoboli.

As a US-listed company, the bank is required to check the effectiveness of its "internal control over financial reporting" and "disclosure controls and procedures" every year. Following the scandal, it has admitted in a document to the SEC that these controls were not effective on 31 December last year, identifying two problems.

The investigation found that the control requiring bilateral confirmation with counterparties of trades within the bank's equities business with settlement dates of greater than 15 days after trade date was not operating. Meanwhile, when such trades were cancelled, re-booked or amended, the related monitoring control had "ceased to operate effectively".

The second problem meant that controls in the inter-desk reconciliation process within the equities and fixed income, currencies and commodities businesses to ensure that internal transactions are valid and accurately recorded did not operate effectively.

Adoboli is set to appear in court in London next month to face two charges of fraud and two of false accounting. He has yet to enter a plea.