UK’s FSA Fines UBS £9.45m for Mis-selling Fund

UK financial regulator the Financial Services Authority (FSA) has imposed a £9.45m fine on Swiss bank UBS for mis-selling an AIG investment fund.

“The FSA has fined UBS AG for failures in the sale of the AIG enhanced variable rate fund” the watchdog said in a statement. “These failures led to UBS customers being exposed to an unacceptable risk of an unsuitable sale of the fund. UBS also failed to deal properly with complaints from customers about sales of the fund.”

The FSA added that UBS had sold the fund to 1,998 high net worth (HNW) customers between December 2003 and September 2008, with investments totalling about £3.5bn. The value of some of the fund’s assets, which were invested in financial and money market instruments, slumped when the global financial crisis struck in 2008.

The FSA said there was a run on the fund when Lehman Brothers applied for Chapter 11 bankruptcy protection in the US on 15 September 2008. At the same time US insurer American International Group (AIG) suffered a liquidity crisis and had to apply to the US Federal Reserve Bank (FRB) for a US$85bn credit facility.

The fund was then suspended, with customers prevented from withdrawing their cash due to the large number of investors seeking to cash out.

The FSA added that UBS has agreed to conduct a redress programme for customers who remained in the fund at the time of its suspension. The bank is expected to pay compensation of around £10m to those affected.

“UBS’s conduct fell far short of what its customers deserved and what the FSA requires,” added Tracey McDermott, the FSA’s director of enforcement and financial crime, in the statement.

“It failed to ensure it understood the product it was selling, failed to recommend it to the right customers and failed to take effective action in the financial crisis when the problems with the fund came to the fore.”

The FSA also said that the fine imposed on UBS had been reduced by 30%, from an original figure of £13.5m, as the bank had agreed to settle at an early stage.


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