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FSA fines UBS £9.5m over AIG fund sales

by Daniel Grote on Feb 12, 2013 at 10:34

FSA fines UBS £9.5m over AIG fund sales

The Financial Services Authority (FSA) has fined UBS £9.5 million for failures in the sale of the AIG Enhanced Variable Rate fund.

The FSA said UBS's failures led to customers being exposed to an unacceptable risk of an unsuitable sale of the fund.

The regulator said that between 1 December 2003 and 15 September 2008 UBS sold the fund to 1,998 high-net-worth customers, with initial investments totalling £3.5 billion. It added that a sample review of sales to 33 customers found that 19 were mis-sold and there was a considerable risk that 12 of the remaining 14 were mis-sold.

It added that UBS had agreed to conduct a redress programme for customers who remained invested in the fund at the time of its suspension on 15 September 2008, and that compensation payouts were likely to be in the region of £10 million.

The AIG fund was a money market fund that also invested in asset-backed securities and floating rate notes to deliver an enhanced return, a strategy that came unstuck in the financial crisis.

The FSA said UBS's failings included:

  • failing to carry out adequate due diligence on the fund or training advisers so they could determine the funds' suitability for customers;
  • advisers recommending the fund even where it did not provide the level of capital security customers sought;
  • indicating to customers that the fund was a cash fund;
  • failing to properly act on its concerns about the risk of fund suspension and losses during the financial crisis;
  • failing to fairly assess customer complaints related to the funds;
  • not maintaining adeqaute sales record.

Tracey McDermott (pictured), FSA director of enforcement and financial crime, said: 'Firms such as UBS should be under no illusion about the standards expected of them. UBS's conduct fell far short of what its customers deserved and what the FSA requires. 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.'

A spokesman for UBS said: 'We are pleased that we can put this issue that dates back to 2008 behind us, so that we can continue to focus on serving our clients and executing our strategy.'

UBS's fine follows the FSA's £6.3 million penalty for Coutts over its sales of the Enhanced fund. St James's Place has paid out to clients invested in the fund, while HSBC has lost a court battle over one of its IFAs' advice to invest in the fund.

6 comments so far. Why not have your say?

Robin Hood

Feb 12, 2013 at 10:56

•not maintaining adeqaute sales record.

Tracey McDermott (pictured), FSA director of enforcement and financial crime, said: 'Firms such as UBS should be under no illusion about the standards expected of them. UBS's conduct fell far short of what its customers deserved and what the FSA requires

Point the finger-3 point back

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Feb 12, 2013 at 11:13

Well, surprise Surprise, a bank selling investment products it did not adequately train sales staff on. It beggers belief that UBS did not understand the content of this investment, as it probably sold some of the contents to AEG itself.

The problem really concerns the sales management team that probably had a conversation along the lines of:

'Listen here people, we have got this thing that pays more than 2% (or whatever) more interest than deposit. Go to your clients that have got bundles of cash and sell them the benefits. We earn 2% (or more) on this and if we can sell 3.5 billion, we can earn £17.5 million commission. Think what your bonus will be. I hope this time my maths are correct)

It seems that a fine of £9.5 million is chicken feed..

I know UBS have to stump up for the losses incurred for all those who were mis-sold of a further £10 million, but until fines are at the same level of commission recieved, there is little financial incentive to alter things.

How much extra did they earn from the sales of product into this investment? They probably came in ahead on the total deal.

Sales managers and persons who signed off these deals should spend at least 4 weeks in jail, just 'pour encourager les autres' to quote Voltaire.

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Alan Smith

Feb 12, 2013 at 12:26


2% of £3.5 Billion would be £70 million.

You should become an adviser to the Chancellor’s economic policy team, the deficit would be down to £0 within a month!!!

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Michael Brown

Feb 12, 2013 at 12:39


So good to see that the maths course is working for you??

Just stick to the advice bit and you will be fine, tongue in cheek comment

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Feb 12, 2013 at 13:01

@ Michael

just how many zeros are in 3.5 billion? My Little Pony calculator seems to have difficulty with that, or I do, one or the other.

Anyway, is 3.5 billion the American billion or the UK billion?

PS, UBS had some fairly wealthy clients don't you think?

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Michael Brown

Feb 12, 2013 at 13:12

@ Hikky

When we were at school there were two things that did not happen

a) No calculators

b) No billions

So don't ask me how many 000,000,000 are required!

Does it really matter at our stage in life?

Very nice clients I would only need a few of them and I would move near to them, pop around each week as long as the trail kept coming in!

As for UBS are they still giving advice or have they run out of money to service them?

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