UBS said the “unauthorized trading incident” that led to a $2.3 billion loss in its third quarter was not “sufficiently investigated” when detected.

The activity allegedly undertaken by former trader Kweku Abodoli involved stock index futures positions offset in UBS systems “with fictitious, forward-settling exchange-traded funds positions.”

The fictitious positions masked its trading risks, but even though both the company’s risk and operational systems detected “unauthorized or unexplained activity,’’ the activity was not properly probed and “appropriate action” was not taken to enforce controls.

UBS said the incident now is being investigated by a special committee appointed by its board as well as a separate investigtion by the Swiss Financial Market Supervisory Authority and the UK Financial Services Authority.

Independent auditor KPMG is also retained to assist.

UBS said Fitch Ratings downgraded its long-term issuer default rating from “A+” to “A” based upon its assessment of diminishing government support with a stable outlook.

Major ratings agencies, the company noted, put its credit on watch for possible downgrading, after it announced the “unauthorized trading incident” on September 15.

UBS did not say what flags were raised by its risk and operational systems, when the unauthorized trading took place.

After calculating the impact of the trading loss, UBS reported a $1.1 billion profit in its third quarter income statement.

-- This article first appeared on Securities Technology Monitor.