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UBS fined £9.5m for AIG fund advice failures

UBS Bern 480

The FSA has fined UBS £9.5m for failures in the sale of the AIG Enhanced Variable Rate Fund.

AIG Life suspended withdrawals from its standard fund and the enhanced fund in September 2008 following high levels of redemptions due to concern about the future of the insurer. At the time, investors were left with the prospect of losing up to 25 per cent of their assets if they did not want to lock away half their investment for three and a half years. In the end investors wanting to withdraw all their assets in December 2008 were hit with a 13.5 per cent reduction in value.

The FSA says failures around the sale of the fund led to UBS customers being exposed to an unacceptable level of risk. The regulator says UBS also failed to deal with customer complaints properly.

Between December 2003 and September 2008 UBS sold the fund to 1,998 high net worth investors. An initial total of £3.5bn was held in the fund.The fund invested in financial and money market instruments but sought to deliver an enhanced return by investing a proportion of assets in asset backed securities.

When Lehman Brothers applied for bankruptcy in September 2008, AIG’s share price fell seeing a large number of customers seeking to withdraw investments. The fund was then suspended and customers were prevented from withdrawing investments.

At the point of suspension the fund had 565 UBS customers with investments totalling £816m.

An FSA sample review of 33 sales of the fund showed that 19 were missold and there was a “considerable chance” 12 of the remaining 14 were missold. The regulator also assessed 11 complaints made by customers and found all had been treated unfairly.

The regulator found UBS failures included; a failure to carry out accurate due diligence on the fund, failing to send customers suitability reports on sale of the fund and telling customers the fund was a cash fund invested in money market instruments when a large portion was invested in other assets.

It was also found UBS failed to review past sales to ensure they were suitable and did not ensure advisers provided a fair and accurate explanation of risks when reassuring customers.

FSA director of enforcement and financial crime Tracey McDermott says: “Firms such as UBS should be under no illusion about the standards expected of them. UBS’s conduct fell far short of what its customers deserved and what the FSA requires.

“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 the problems with the Fund came to the fore.”

In November 2011, the FSA fined Coutts & Company £6.3m for failing relating to its sale of the AIG fund.

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