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Compliance

UBS fined for failures in selling AIG Enhanced Variable Rate Fund

Posted on 28 Mar 2013

The FSA’s investigation into UBS’s dealings in the sale of AIG Enhanced Variable Rate Fund has resulted in a fine of £9.45m. The Fund was sold to thousands of high net worth customers over a period of five years but according to the FSA’s director of enforcement and financial crime, Tracey McDermott, “[UBS] 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”

In its Final Notice the FSA highlighted the numerous regulatory failings:

Due Diligence Failures: UBS did not carry out appropriate due diligence on the Fund;

Insufficient Training: Sales staff were not provided with adequate training on the Fund to understand its risks;

Suitability Failures: The Fund was recommended to some customers even though it did not provide the necessary level of capital security the customers sought. Moreover, some customers’ risk tolerance was not effectively taken into account;

Misleading Customers: UBS indicated to its customers that as a cash fund it would only be investing in money market instruments. However, a significant proportion was invested in other assets, including asset backed securities;

Inadequate Action: Despite the financial difficulties of 2007 and 2008, UBS failed to address the greater risk. They did not confront issues concerning the sales of the Fund, nor consider past sales to ensure suitability and further failed to assess whether advisers had provided fair and accurate appraisals of the risk. Therefore, UBS did not reassure its customers but simply generated greater confusion;

Inadequate Sales Records: UBS ought to have maintained suitable sales records detailing whether the Fund was sold on an advised, discretionary or non-advised basis; and

Failure to assess complaints: Despite a thorough assessment of customer complaints, UBS failed to assess complaints fairly.

Jerome Lussan, CEO of Laven Partners, comments: “The FSA has demonstrated a tougher stance towards any failings that occur during the sale of financial products. The FSA hopes that such serious action will deter other firms from breaking the rules. We hope that the FSA’s efforts of enforcement will be continued when the FCA takes over in April.”