Compliance failures may cost UBS $30 million

, Bloomberg


UBS AG may have to pay out as much as $30.4 million in fines and compensation for compliance failures on the sale of a fund linked to American International Group Inc.

The bank was fined nearly $15 million by the U.K.'s financial watchdog for failing to carry out due diligence on the AIG Enhanced Variable Rate Fund before selling it to customers, the U.K. Financial Services Authority said in an emailed statement. It may need to pay out about $15 million more in compensation to customers, the agency said.

"We have made our expectations in relation to the wealth management industry clear," Tracey McDermott, director of enforcement at the FSA, said in the statement. "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."

The fine comes less than two months after the Swiss bank agreed to pay about $1.5 billion to settle with U.S. and U.K. regulators over manipulating interest rates to boost profits and bonuses. In November, former UBS trader Kweku Adoboli was sentenced by a London court to seven years in jail after a $2.3 billion unauthorized trading loss. He argued at trial that UBS managers pushed traders to take too many risks and rule-breaking was rampant. The bank was fined $46.5 million by the FSA over control failures related to Adoboli's loss.

Some customers were prevented from withdrawing money from the AIG fund after Lehman Brothers Holdings Inc. collapsed in 2008 triggering a financial crisis, the FSA said. New York-based AIG repaid the last of its $182.3 billion U.S. government bailout in December.

"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," the Zurich-based bank said in an emailed statement.

UBS sold the fund to around 2,000 customers with initial investments totaling nearly $5.5 billion between 2003 and 2008, the FSA said. About 565 customers had $1.28 billion tied up in the fund when it collapsed.

The bank agreed to settle at an early stage of the FSA's investigation and qualified for a 30 percent discount on the fine, the agency said.

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