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02

Swiss bank fined £9m for fund failings

Open-access content Tuesday 12th February 2013 — updated 5.13pm, Wednesday 29th April 2020

UBS has been fined £9.45m by the Financial Services Authority for exposing customers to an ‘unacceptable risk’ and for failing to deal properly with complaints when it sold an AIG investment fund.

The FSA said that the Swiss bank sold the AIG Enhanced Variable Rate Fund to almost 2,000 high net worth customers between December 2003 and September 2008. Initial investments totalled around £3.5bn.

When the share price of AIG, a US insurer, fell sharply in September 2008 there was a run on the fund. It was then suspended preventing customers from withdrawing their investment.

The FSA said that 19 customers had been mis-sold and there was 'considerable risk' that a further 12 may also have been mis-sold. Compensation payments to customers are expected to be around £10m.

'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,' said Tracey McDermott, the FSA's director of enforcement and financial crime.

'It failed to ensure it understood the product it was selling, failed to recommend it to the right customers and failed to take effective action in the financial crisis when problems with the fund came to the fore.'

The Zurich-based bank said in a statement today: '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 received a 30% discount on the fine as it agreed to settle at an early stage. Were it not for the discount, a penalty of £13.5m would have been imposed.

It has previously been fined by the FSA for its manipulation of the Libor inter-bank lending rate and for poor controls over a rogue trader.

This article appeared in our February 2013 issue of The Actuary.
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