UBS AG

On 18 March 2019, the FCA has fined UBS AG. The reason for this action is because UBS AG breached SUP 17 between 5 November 2007 and 24 May 2017 and breached SUP 15 and Principle 3 between 5 November 2007 and 31 July 2014 in relation to its transaction reporting obligations. As a consequence of this action, the FCA has imposed a fine of £27,599,400. UBS agreed to resolve this matter and qualified for a 30% (stage 1) discount under the Authority’s executive settlement procedures. Were it not for this discount, the Authority would have imposed a financial penalty of £39,427,795. The FCA’s action took effect on 18 March 2019 and a copy of the Final Notice is displayed on the FCA's web site here: https://www.fca.org.uk/publication/final-notices/ubs-ag-2019.pdf  

The Financial Conduct (the FCA) imposed a financial penalty of £233,814,000 on UBS AG (UBS) of 1 Finsbury Avenue, London, EC2M 2PP. The FCA's action took effect on 11 November 2014 and a copy of the Final Notice, which sets out the reasons for the action is displayed on the FCA's website and can be accessed via the following link: http://www.fca.org.uk/static/documents/final-notices/final-notice-ubs.pdf The foreign exchange market (FX market) is one of the largest and most liquid markets in the world. Its integrity is of central importance to the UK and global financial systems. Over a period of five years, UBS failed properly to control its Zurich voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put UBS's interests ahead of the interests of its clients, other market participants and the wider UK financial system. The FCA expects firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, irrespective of whether or not those markets are regulated. The FCA also expects firms to promote a culture which requires their staff to have regard to the impact of their behaviour on clients, other participants in those markets and the financial markets as a whole. UBS's failure adequately to control its Zurich voice trading operations in the G10 spot FX market is extremely serious. The importance of this market and its widespread use by market participants throughout the financial system means that misconduct relating to it has potentially damaging and far-reaching consequences for the G10 spot FX market and financial markets generally. The failings described in the Final Notice undermine confidence in the UK financial system and put its integrity at risk. UBS breached Principle 3 of the FCA's Principles for Businesses in the period from 1 January 2008 to 15 October 2013 (the Relevant Period) by failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems in relation to G10 spot FX voice trading in Zurich. References in the Final Notice to UBS's G10 spot FX trading business refer to its relevant voice trading desk based in Zurich. During the Relevant Period, UBS did not exercise adequate and effective control over its G10 spot FX trading business. UBS relied primarily upon its front office FX business to identify, assess and manage risks arising in that business. The front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct. The right values and culture were not sufficiently embedded in UBS's G10 spot FX trading business, which resulted in it acting in UBS's own interests as described in the Final Notice without proper regard for the interests of its clients, other market participants or the wider UK financial system. The lack of proper control by UBS over the activities of its G10 spot FX traders in Zurich undermined market integrity and meant that misconduct went undetected for a number of years. UBS's control and risk functions failed to challenge effectively the management of these risks in the G10 spot FX trading business. UBS's failings in this regard allowed the following behaviours to occur in its G10 spot FX trading business: (1) Attempts to manipulate the WMR and the ECB fix rates, alone or in collusion with traders at other firms, for UBS's own benefit and to the potential detriment of certain of its clients and/or other market participants; (2) Attempts to trigger clients' stop loss orders for UBS's own benefit and to the potential detriment of those clients and/or other market participants; and (3) Inappropriate sharing of confidential information with traders at other firms, including specific client identiies and, as part of (1) and (2) above, information about clients' orders. These failings occurred in circumstances where certain of those responsible for managing front office matters were aware of and/or at times involved in behaviours described above. They also occurred despite the fact that UBS received whistleblowing reports between November 2010 and December 2012 which alleged misconduct by FX traders. Internal reports by UBS in 2011 and 2012 also identified significant weaknesses and gaps in UBS's systems and controls around market conduct issues. UBS was on notice about misconduct associated with LIBOR / EURIBOR during the Relevant Period. The FCA issued a Final Notice and a financial penalty against UBS on 19 December 2012 in relation to benchmark setting for LIBOR / EURIBOR. Against this background UBS engaged in an extensive remediation programme across its businesses in response to LIBOR / EURIBOR which included significant improvements to its systems and controls relating to submissions-based benchmarks. Despite these improvements, the steps taken during the Relevant Period in its G10 spot FX trading business did not adequately address the root causes that gave rise to failings described in the Final Notice. The FCA acknowledges the significant co-operation and assistance provided by UBS during the course of its investigation. The FCA recognises that UBS acted promptly in being the first firm to bring the behaviours referred to in the Final Notice to the FCA's attention. UBS is continuing to undertake remedial action and has committed significant resources to improving the business practices and associated controls relating to its FX operations. It has taken important steps to promote changes to the culture and values across its business. The FCA recognises the work already undertaken by UBS in this regard. The Final Notice relates solely to UBS's conduct in its G10 spot FX trading business in Zurich. It makes no criticism of any entities other than the firms engaged in misconduct as described in the Final Notice.

On 8 February 2013, the FSA imposed a financial penalty of £9,450,000 on UBS AG (UBS) in respect of UBS' failure to comply with Principle 9 and Principle 6 of the FSA's Principles for Businesses and certain rules set out in the FSA handbook in connection with its sales of the AIG Life Premier Access Bond, Enhanced Variable Rate Fund (the Fund) between 1 December 2003 and 15 September 2008 and its handling of related complaints between 15 September 2008 and 20 September 2011. UBS agreed to settle at an early stage of the FSA's investigation. UBS therefore qualified for a 30% (Stage 1) discount under the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £13,500,000 on UBS. During the Relevant Period, UBS AG: (1) failed to conduct adequate due diligence on the Fund before selling it to customers. As a result, UBS had insufficient understanding of the nature of the assets in the Fund and the consequent risks associated with it. Furthermore, between January 2004 and August 2007, UBS failed to monitor effectively the asset composition of the Fund; (2) failed to have an adequate sales process in place for the Fund. UBS' advisers were not provided with adequate training on the Fund and its features and risks. As a result, UBS did not ensure that advisers understood the risks of the Fund and could determine correctly whether the Fund was suitable for their customers; (3) did not adequately capture customers' tolerance to risk in relation to the liquidity element of their portfolios with UBS, as well as customers' risk tolerance for their portfolios as a whole as part of the sales process of the Fund, and failed to ensure that annual reviews of customers' risk profiles and portfolios were performed; (4) recommended the Fund to some customers even though it did not provide them with the level of capital security they appear to have required. UBS did not send suitability reports to customers to whom it sold the Fund. This meant that customers did not receive a written explanation of why the Fund was suitable for them taking into consideration their circumstances and investment objectives, including any competing objectives, or an explanation of the trade-off between the Fund's risks and returns. Further, there was no compliance monitoring review of any of the 1,998 sales of the Fund which could have rectified this failing; (5) indicated to customers that the Fund was a cash fund which invested in money market instruments. However, a significant proportion of the Fund was invested in assets which did not meet this description and customers may have misunderstood the true position about the risks they were assuming; (6) failed to respond appropriately during the financial crisis in 2007 and 2008 when it had concerns regarding the sale of the Fund and also realised there was a greater risk of the Fund suspending redemptions and of customers suffering a loss. In the third quarter of 2007, UBS took steps to improve its knowledge of the types of assets within the Fund and the risks associated with the Fund. Nevertheless, UBS failed to take appropriate action to address its concerns and the way in which it continued to sell the Fund. UBS also failed to ensure that advisers who sought to reassure existing customers inquiring about their investments in the Fund provided a fair and accurate explanation of the risks. Further, UBS failed to review its past sales of the Fund to ensure that these had been suitable for customers; (7) despite conducting a thorough investigation of customer complaints relating to its sale of the Fund, failed to assess those complaints fairly; and (8) failed to maintain adequate records of its sales of the Fund. As a consequence of the above failings, UBS' customers were exposed to an unacceptable risk of an unsuitable sale of the Fund and were not treated fairly. At the time of the Fund's suspension on 15 Septer 2008, 565 UBS customers holding 618 policies had approximately £816 million invested in the Fund. Of these, 119 customers had complained by September 2011. The FSA reviewed sales of the Fund made by UBS to 33 of its customers. It found that 19 of those 33 customers were mis-sold the Fund and that there was a considerable risk that 12 of the remaining 14 may have been mis-sold the Fund (albeit that customer contact would be required to determine whether those sales were actually unsuitable). The FSA also reviewed complaints made by 11 customers who had been sold the Fund and found that all 11 complaints had been assessed unfairly, albeit that six had been upheld by UBS. Following discussions with the FSA, UBS agreed to conduct a redress programme in relation to sales of the Fund to its customers who remained invested at the time of the Fund's suspension on 15 September 2008. It is estimated that compensation payable to customers will be in the region of £10 million.

The Financial Services Authority (the 'FSA') imposed a financial penalty of £160,000,000 on UBS AG ('UBS') of 1 Finsbury Avenue, London, EC2M 2AN. The FSA's action took effect on 19 December 2012 and a copy of the Final Notice, which sets out the reason for the action is displayed on the FSA's website and can be accessed via the following link: http://www.fsa.gov.uk/static/pubs/final/ubs.pdf The London Interbank Offered Rate ('LIBOR') and the Euro Interbank Offered Rate ('EURIBOR') are benchmark reference rates fundamental to the operation of both UK and international financial markets including markets in interest rate derivatives contracts. The integrity of benchmark reference rates such as LIBOR and EURIBOR is therefore of fundamental importance to both UK and international financial markets. Between 1 January 2005 and 31 December 2010 (the 'Relevant Period'), UBS breached Principles 3 and 5 of the FSA's Principles for Businesses through misconduct relating to the calculation of LIBOR and EURIBOR. UBS, acting through its managers and employees sought to manipulate certain LIBOR currencies and EURIBOR during the Relevant Period. They did so in connection with the submission of rates that formed part of the calculation of LIBOR and EURIBOR. UBS, through four of its Traders, colluded with interdealer brokers in co-ordinated attempts to influence JPY LIBOR submissions made by Panel Banks. In addition, UBS through one of its Traders also colluded with JPY LIBOR Panel Banks directly. UBS's misconduct undermined the integrity of those benchmark reference rates.

On 26 November 2012 the Financial Services Authority (the FSA) fined UBS AG £29.7 million (discounted from £42.4 million for early settlement) for systems and controls failings that allowed an employee to cause substantial losses totalling US$2.3 billion as a result of unauthorised trading. The unauthorised trading was carried out between 1 June 2011 and 14 September 2011 (the Relevant Period) on the Exchange Traded Funds Desk in the Global Synthetic Equities trading division conducted from the London Branch of UBS. During the Relevant Period, UBS breached Principle 3 by failing to take reasonable care to organise and control and its affairs responsibly and effectively, with adequate risk management systems and breached Principle 2 by failing to conduct its business from its London Branch with due skill, care and diligence. A copy of the Final Notice which sets out the reason for the action is displayed on the FSA's website and can be accessed using the following link: http://www.fsa.gov.uk/static/pubs/final/ubs-ag.pdf

On 5 August 2009, FSA imposed a financial penalty of £8 million on UBS AG ('UBS') in respect of breaches of Principle 2 and 3 of the FSA's Principles for Business. These breaches occurred between 1 January 2006 and 31 December 2007 in UBS' international wealth management business conducted from its London branch. Despite several warning signs indicating that its systems and controls were inadequate, UBS failed to prevent or detect unauthorised trading by certain employees which caused losses to customers. UBS has paid compensation in excess of USD 42.4 million to affected customers.

On 5 August 2009, the FSA imposed a financial penalty on UBS AG (UBS) of £8,000,000 for breaches of Principles 2 and 3 of the FSA's Principles for Business (the Principles). The breaches of the Principles occurred between 1 January 2006 and 31 December 2007 (the Relevant Period) in relation to the systems and controls around the international wealth management business conducted with non-UK resident clients from UBS' London Branch. The FSA has not made any findings in relation to the domestic wealth management businesses conducted either via UBS' London Branch or via UBS Wealth Management (UK) Limited. During the Relevant Period, UBS breached Principle 2 by failing to conduct its international wealth management business from the London Branch with due skill, care and diligence and breached Principle 3 by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. The breaches became apparent when, as a result of concerns raised by an employee, UBS discovered that certain UBS employees on one desk in the international wealth management business had been involved in unauthorised foreign exchange and precious metals trading across 39 customer accounts during the Relevant Period (the Unauthorised Trades). The actions of these employees caused losses to customers who have since been compensated by UBS. To date, UBS has paid compensation in excess of USD 42 million to affected customers. The Unauthorised Trades were concealed from customers (and from UBS itself), by the deliberate actions of employees who effected, amongst other things: (i) unauthorised internal transfers between the accounts of affected customers; (ii) the use of an internal suspense account; and (iii) the creation of unauthorised purported loans between affected clients. During the Relevant Period, there was insufficient focus by UBS on the key risks associated with its London Branch's international wealth management business which dealt with international, high net-worth customers with sophisticated financial and wealth management needs. The FSA acknowledges that UBS has now made changes to the systems and controls environment around its international wealth management business so as to correct the defects identified therein.

On 17 November 2005, the FSA imposed a financial penalty of £100,000 on UBS AG (UBS) in respect of breaches of Rule 5.49 of the Securities and Futures Authority Rules (the SFA Rules) and SUP 17.4R and SUP 15.61R of the FSA Rules, namely the obligations to make transaction reports to the SFA and later the FSA and to take reasonable steps to ensure that the transaction reports that it did provide to the FSA were accurate. From May 1999 to 30 November 2001, UBS contravened the requirement imposed on it to make transaction reports in respect of transactions entered on its own account or on the account of others by failing to make transaction reports at all or by failing to ensure that the transaction reports were accurate in accordance with R5.49. From 1 December 2001 to 6 October 2005, UBS contravened the requirement imposed on it to make transaction reports in respect of transactions entered into by it either on its own account or on the account of others by failing to make transaction reports at all in contravention of the requirement in SUP17.4R, and UBS failed to take reasonable steps to ensure that the transaction reports that it did provide to the FSA were accurate in accordance with SUP 15.6.1R.