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Following the discovery of the unauthorized trading activities that UBS announced in September, management has determined that certain internal controls were not effective on December 31, 2010, but at the same time has reconfirmed the reliability of the financial statements included in UBS's 2010 annual report. The financial effect of the unauthorized trading activity is fully reflected in UBS's third quarter 2011 financial report.
As a US-listed company, UBS is required under the Sarbanes-Oxley Act to evaluate the effectiveness of its "internal control over financial reporting" and "disclosure controls and procedures" on an annual basis. Following the discovery of the unauthorized trading activities, management has determined that these controls were not effective on December 31, 2010. In a document submitted to the US Securities and Exchange Commission (SEC), we have identified two control deficiencies: (i) the control requiring bilateral confirmation with counterparties of trades within our Investment Bank's equities business with settlement dates of greater than 15 days after trade date was not operating, and, when such trades were cancelled, re-booked or amended, the related monitoring control to ensure the validity of these changes had ceased to operate effectively, and (ii) the controls in the inter-desk reconciliation process within the Investment Bank’s equities and fixed income, currencies and commodities businesses to ensure that internal transactions are valid and accurately recorded in our books and records, including controls over cancelations and amendments of internal trades that require supervisor review, intervention and resolution, did not operate effectively. We have taken and are taking measures to address these control deficiencies.
Investigations are ongoing, and management may become aware of facts relating to the Investment Bank that cause it to broaden the scope of the findings described above and to take additional remedial measures.
The SEC submission referred to above may be accessed at www.ubs.com/1/e/investors/other_filings/sec.html. The document will be available later today after it has been submitted to the SEC.
