MAS Imposes Civil Penalty of $11.2 million on UBS for Deceptive Trades by its Client Advisors

Singapore, 14 November 2019 The Monetary Authority of Singapore (MAS) has imposed a civil penalty of $11.2 million on UBS AG (UBS), for acts of its client advisors that contravened section 201(b) of the Securities and Futures Act (SFA). The client advisors had engaged in acts that deceived or were likely to deceive clients about the spreads and/or interbank prices for transactions in over-the-counter (OTC) bonds and structured products. The enforcement action followed UBS’ reporting of the misconduct to MAS, and MAS’ subsequent investigations.

2 UBS has admitted liability for its client advisors’ actions and paid MAS the civil penalty. As part of the civil penalty settlement, UBS will compensate all affected clients managed by UBS’ Singapore branch.

3 Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision), MAS, said, The conduct of UBS through its representatives is unacceptable and has no place in the financial services industry where trust and integrity are paramount. Our enforcement action and penalty took into account that UBS has undertaken to compensate affected clients and that the bank rendered full cooperation to MAS during the investigation.

4 When UBS executed OTC transactions requested by its clients, it did so with interbank counterparties, and its practice was to charge a spread over the interbank price that it obtained from the counterparty. In 2016, UBS reported to MAS that the bank had uncovered certain malpractices in Hong Kong and Singapore with regard to spread taking in OTC transactions.

5 Our investigations showed that in numerous transactions, the client advisors either:

a. Did not adhere to the spread or interbank price of a trade as agreed with or understood by the client;

b. Failed to disclose or made only partial disclosure to the client when there was a price improvement in the interbank price of a limit order; and/or

c. Overcharged the clients in excess of the fees set out in the bank’s fee disclosure documents to clients.

6 The client advisors’ actions were possible because OTC product prices were not readily accessible to clients for them to verify against the transacted prices advised by UBS. In addition, internal system weaknesses enabled the client advisors to increase the spread post-trade in the order management system. As the post-trade contract notes sent to clients reflected only the final all-in price without a breakdown of the spread and interbank price, the clients were not informed of the higher spread and/or improved interbank price.

7 While the civil penalty action by MAS against UBS relates to transactions executed from 2014 onwards in Singapore-managed accounts [1] , UBS has undertaken to compensate all affected clients for misconduct during the period 2008 to 2017. Investigations into the individuals involved in the misconduct are ongoing.

8 In 2018, MAS conducted an inspection of UBS, to review the bank’s efforts in remediating the internal control weaknesses that led to the contraventions. We note that the bank has taken measures to address system and control deficiencies to prevent arbitrary spread increases, and enhance price disclosures to clients. MAS has asked UBS to appoint an independent party to validate the adequacy and effectiveness of the bank’s remediation measures. UBS is required to report the reviewer’s findings to MAS.

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Additional information

(A) The civil penalty regime

A civil penalty action is not a criminal action and does not attract criminal sanctions. The civil penalty regime, designed to complement criminal sanctions and provide a nuanced approach to combat market misconduct, became operational at the beginning of 2004.

Under section 232 of the SFA, MAS may enter into an agreement with any person for that person to pay, with or without admission of liability, a civil penalty for contravening any provision of Part XII of the SFA. The civil penalty may be up to three times the amount of the profit gained or loss avoided by that person as a result of the contravention, subject to a minimum of $50,000 (if the person is not a corporation) or $100,000 (if the person is a corporation).

(B) Employment of manipulative and deceptive devices under Section 201(b) of the SFA

Under this section, no person shall, directly or indirectly, in connection with the subscription, purchase or sale of any securities engage in any act, practice or course of business which operates as a fraud or deception, or is likely to operate as a fraud or deception, upon any person.

1. [1] Under section 233 of the SFA, MAS may initiate civil penalty action no later than 6 years from the date of the contravention.

Source: Monetary Authority of Singapore