Today the Financial Services Authority (FSA) revealed that UBS demonstrated significant failings in the sale of the AIG Enhanced Variable Rate fund between 2003 and 2008, and fined the bank £9.45m. But where did it all go wrong? IFAonline details the eight ways UBS failed its customers.
1. Due diligence
UBS failed to conduct adequate due diligence on the fund before selling it to customers, the FSA said. As a result, the bank 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. Sales process
The regulator said UBS failed to have an adequate sales process in place for the fund. UBS's advisers were not provided with adequate training on the fund, nor its features and risks.
Just what did UBS do to deserve a near-£10m FSA fine?
As a result, the bank did not ensure that advisers understood the risks of the fund and could determine correctly whether the fund was suitable for their customers.
3. Attitude to risk
UBS 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, the FSA said. It also failed to ensure that annual reviews of customers' risk profiles and portfolios were performed.
4. Unsuitable advice
UBS advisers recommended the fund to some customers even though it did not provide them with the level of capital security they appear to have required, the regulator disclosed.
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, 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. Asset allocation
UBS indicated to customers that the product 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, the FSA said.
6. Managing risk
UBS 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. Poor complaints handling
Despite conducting a thorough investigation of customer complaints relating to its sale of the fund, UBS failed to assess those complaints fairly.
8. Poor record-keeping
UBS 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, the FSA said.
At the time of the fund's suspension on 15 September 2008, 565 UBS customers holding 618 policies had approximately £816m invested in the fund. Of these, 119 customers had complained by September 2011.
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Avoidance, evasion and non-compliance
From 6 April 2019
Marcus Brookes appointed CIO