UBS Fined $8 Million over Compliance Failures in ETP Sale

The US Securities and Exchange Commission (SEC) has imposed a civil penalty of $8 million on UBS Financial Services Inc. for compliance failures relating to sales of a volatility-linked exchange-traded product (ETP).

Announced on Monday, the regulator has filed a settled action against the investment bank as it has agreed to the cease and desist and separate censure order without agreeing or denying the allegations.

UBS will have to pay the civil penalty of $8 million, along with disgorgement and prejudgment interest of $112,274.

The Charges

In the announcement, the regulator detailed that the issuer of the ETP warned UBS against the holding of the investment product over an extended period. Even the documents of the ETP made it clear that its value was likely to decline when held over a longer period.

USB, however, prohibited brokerage representatives from soliciting sales of the ETP and even placed restrictions on its sale to brokerage customers. But, the investment bank did not impose any restrictions on certain financial advisers’ use of the ETP in discretionary managed client accounts.

Additionally, the regulator found that UBS adopted a concentration limit on volatility-linked ETPs, but did not implement any system to monitor and enforce that over five years.

“The order also finds that between January 2016 and January 2018, certain financial advisers had a flawed understanding of the appropriate use of the volatility-linked ETP and failed to take sufficient steps to understand risks associated with holding the product for extended periods,” the SEC announcement stated. “These financial advisers, the order further finds, purchased and held the product in client accounts for lengthy periods, including hundreds of accounts that held the product for over a year, resulting in meaningful losses.”

Last year, UBS faced a $10 million penalty by the SEC to resolve charges regarding certain municipal bond offerings.

“Advisory firms must protect clients from inappropriate investments in complex financial products,” Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said.

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