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.