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UBS Fined GBP 9.45 Mln By FSA For Failures In AIG Fund Sale

The Financial Services Authority or FSA in the UK on Tuesday said it has imposed a 9.45 million pounds fine for Swiss financial giant UBS AG (UBS: Quote) for failures in its sale of AIG Enhanced Variable Rate Fund of Insurer American International Group, Inc. (AIG: Quote).

According to FSA, the failures by UBS led to its customers being exposed to an unacceptable risk of an unsuitable sale of the fund. UBS agreed to settle at an early stage, entitling it to a 30 percent discount on its fine. Were it not for this discount, the FSA would have imposed a financial penalty of 13.5 million pounds on UBS.

The fund was launched in December 2003 and was supplied by American Life Insurance Co., a UK branch of a subsidiary of AIG. UBS sold the fund between December 1, 2003 and September 15, 2008 to 1,998 high net worth customers, with initial investments totaling about 3.5 billion pounds.

The fund was suspended after a large number of investors sought to withdraw their investment due to a sharp decline in AIG's share price following Lehman Brothers' Chapter 11 bankruptcy protection application during the financial crisis of 2007 and 2008.

According to FSA, UBS breached certain FSA principles as it failed to carry out adequate due diligence on the Fund before selling it to customers, and also failed to ensure its advisers were provided with appropriate training about the Fund.

UBS' failings also included that it indicated that the Fund was a cash fund that invested in money market instruments, while a significant proportion was invested in other assets.

Tracey McDermott, director of enforcement and financial crime, said, "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 now has agreed to conduct a redress program 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 pounds.

"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 said in an e-mailed statement.

In mid-December, UBS agreed to pay about 1.4 billion Swiss francs or about $1.53 billion in fines and disgorgement to settle LIBOR-related investigations on manipulation of key global benchmark interest rates. UBS agreed to pay 160 million pounds in fines to the FSA, the largest fine ever imposed by the FSA for significant failings regarding the London Interbank Offered Rate or LIBOR.

In Zurich, UBS shares are currently trading at 15.33 Swiss francs, up 0.12 francs or 0.79 percent, on a volume of 4.6 million shares.

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by RTT Staff Writer

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