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UBS fined £9.45m for failings in sale of AIG fund

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UBS fined £9.45m for failings in sale of AIG fund

The Financial Services Authority (FSA) has fined UBS £9.45 million for failures in the sale of the AIG Enhanced Variable Rate fund.

The watchdog said 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.

Between 1 December 2003 and 15 September 2008 UBS sold the AIG fund to 1,998 high net worth customers, with initial investments totalling approximately £3.5 billion.

The fund invested in financial and money market instruments but it aimed to deliver an enhanced return by investing a significant amount in asset backed securities and floating rate notes. 

However, during the financial crisis of 2007 and 2008, the market values of some of the assets in the fund fell below their book values, followed by Lehman’s collapse and AIG’s share price collapsing suddenly.

Consequently, a large number of investors tried to withdraw their investments and there was a run on the fund.  The fund was then suspended with customers prevented from immediately withdrawing all of their investment. 

At that point 565 UBS customers had approximately £816 million invested in the fund.

The FSA said a sample review of sales of the fund to 33 customers found that 19 were mis-sold, while there was a considerable risk that 12 of the remaining 14 may have also been mis-sold the fund.

UBS has agreed to conduct a redress programme for those customers who remained invested in the fund at the time of its suspension.  It is estimated that compensation payable to customers will be around £10 million. 

Tracey McDermott, director of enforcement and financial crime, said in a statement: ‘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.’

She added: ‘We have made our expectations in relation to the wealth management industry clear. UBS has paid the price for its failures and we will continue to take strong action against firms who fail to do the right thing for their customers.’

UBS agreed to settle at an early stage entitling it to a 30% discount on its fine, which would otherwise have been £13.5 million.

The news comes shortly after Sir Keith Mills reached a settlement with Coutts over the private bank's sale of the AIG fund.
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