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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.

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.

Between December 2003 and September 2008, UBS sold the fund to 1,998 high-net-worth investors who invested £3.5bn.

AIG Life suspended withdrawals from its Enhanced and Standard Variable Rate funds in September 2008 following high levels of redemptions due to concern about the future of the insurer. At the time, the Enhanced fund had 565 UBS customers with investments totalling £816m.

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.

An FSA sample review of 33 sales show 19 were missold, with 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 FSA says UBS failed to carry out accurate due diligence, failed to send customers suitability reports on the fund and told customers it was a cash fund invested in money market instruments.

Master Adviser director Doug Brodie says: “The banks obviously did not know what they were doing when selling these funds. There are still FSA fines looming for a number of banks over AIG funds sales.”

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

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