UBS fined $400m for overcharging clients

Business | Bloomberg and Tereza Cai 12 Nov 2019

The Securities and Futures Commission has fined UBS a record-equaling HK$400 million for overcharging global wealth management clients during almost a decade and flagged concerns about serious and systematic problems with the bank's internal controls.

The SFC found that UBS systematically overcharged private banking clients by manipulating the price on bond and structured product trades between 2008 to 2015, according to a statement from the regulator.

UBS also charged some clients too much in fees between 2008 and 2017, the authorities said.

To hide the charges, UBS sometimes falsified account statements by misreporting the spread amounts for the trades, according to the statement.

"Although each overcharge represented a fraction of each trade, UBS's misconduct involved deception and a pervasive abuse of trust resulting in significant additional revenue for UBS to which it is not entitled," SFC's chief executive Ashley Alder said in the statement.

The fine equals a record set in November 2017, when HSBC Private Bank (Suisse), the Hong Kong branch of the Switzerland-based private banking business of HSBC (0005), was fined HK$400 million for material systemic failures in relation to the sale of derivative products - namely, Lehman Brothers-related Notes (LB-Notes) and Leveraged Forward Accumulators (FAs) - in the run-up to the global financial crisis in 2008.

It is the second time that Hong Kong has imposed sanctions on UBS for bad market behavior in recent years.

In March, a group of banks including UBS and Morgan Stanley agreed to pay a combined HK$787 million related to settle cases brought by the authorities concerning the banks' work on initial public offerings in the city.

UBS will repay approximately HK$200 million in overcharges and interest to some 5,000 Hong Kong-managed client accounts.

In its third-quarter report, the bank had provisioned for the expected fines and need to reimburse clients.

In its statement, the SFC said that UBS's failure to report the misconduct until two years after it was detected was not an isolated incident.

"After a comprehensive review, UBS self-identified and reported this matter to the relevant Regulators," the bank said in a statement. "The behavior of the individuals involved is unacceptable and in strong contrast to the behavioral principles of our firm."

The transactions accounted for a very small percentage of the bank's order processing system, UBS said in its statement.

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