UBS has been fined for failures in relation to an AIG money market fund that was a victim of the 2008 financial crisis.
The Financial Services Authority (FSA), the UK financial regulator, fined UBS AG £9.45 million (€11.01 million) for failures, including mis-selling, in the sale of the AIG Enhanced Variable Rate Fund.
AIG is a US insurance corporation that suffered a liquidity crisis in the 2008 financial turmoil.
Between 1 December 2003 and 15 September 2008 UBS sold the AIG fund to 1,998 high-net-worth customers, with initial investments totalling approximately £3.5 billion. The fund invested in financial and money market instruments but, unlike a standard money market fund, it sought enhanced returns by investing significantly in asset-backed securities and floating rate notes.
During the financial crisis of 2007 and 2008, the market values of some of the assets in the fund fell below their book values. There was a run on the fund, which was suspended.
A sample review by the FSA of sales of the fund to 33 customers found mis-selling to 19 customers and a considerable risk that 12 of the remaining 14 may have been mis-sold.
UBS has agreed to conduct a redress programme for those customers who remained invested in the fund at the time of its suspension. It is estimated that compensation payable to customers will be around £10 million.
Other UBS’s failings were serious, the FSA said, and included a failure to carry out adequate due diligence on the fund before selling it to customers.
Tracey McDermott, director of enforcement and financial crime, says: “We have made our expectations in relation to the wealth management industry clear. 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.”
UBS agreed to settle at an early stage entitling it to a 30% discount on its fine. Were it not for this discount, the FSA would have imposed a financial penalty of £13.5 million on UBS.
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