UBS AG may have to pay out as much as 19.5 million pounds ($30.5 million) in fines and compensation for compliance failures on the sale of a fund linked to American International Group Inc.
The bank was fined 9.45 million pounds by the U.K.’s financial watchdog for failing to perform “adequate” due diligence on the AIG Enhanced Variable Rate Fund before selling it to customers, the U.K. Financial Services Authority said in an e-mailed statement. The bank, facing its third fine in four months from the FSA, may also have pay to out 10 million pounds more in compensation to customers, the agency said.
“We have made our expectations in relation to the wealth management industry clear,” Tracey McDermott, director of enforcement at the FSA, said in the statement. “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.”
The fine comes less than two months after the Swiss bank agreed to pay about $1.5 billion to settle with U.S. and U.K. regulators over manipulating interest rates to boost profits and bonuses. In November, former UBS trader Kweku Adoboli was sentenced by a London court to seven years in jail after a $2.3 billion unauthorized trading loss. He argued at trial that UBS managers pushed traders to take too many risks and rule-breaking was rampant. The bank was fined 29.7 million pounds by the FSA over control failures related to the loss.
Some customers were prevented from withdrawing money from the AIG fund after Lehman Brothers Holdings Inc. collapsed in 2008 triggering a financial crisis, the FSA said. New York-based AIG repaid the last of its $182.3 billion U.S. government bailout in December.
“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,” the Zurich-based bank said in an e-mailed statement.
Clients at UBS’s London wealth-management unit were compensated in 2009 after the former head of a trading desk was found to have made 50 unauthorized trades a day over a two-year period from 39 client accounts. UBS paid an 8 million pound-fine and agreed to reimburse customers $42.4 million over the losses that resulted in that case.
UBS sold the AIG fund to around 2,000 customers with initial investments totaling 3.5 billion pounds between 2003 and 2008, the FSA said. About 565 customers had 816 million pounds tied up in the fund when it collapsed.
The bank agreed to settle at an early stage of the FSA’s investigation and qualified for a 30 percent discount on the fine, the agency said.