MAS imposes $11.2 mil civil penalty on UBS for 'deceptive trades' by client advisors

Uma Devi

SINGAPORE (Nov 14): The Monetary Authority of Singapore (MAS) has imposed a civil penalty of $11.2 million on UBS for deceptive trades made by the investment bank’s client advisors in Singapore.

In a statement on Thursday, MAS noted that 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”.

In 2016, UBS had reported to MAS that the bank had uncovered certain malpractices in Hong Kong and Singapore with regard to spread taking in OTC transactions.

Subsequent investigations by MAS revealed that in numerous transactions, the client advisors did not adhere to the spread or interbank price of a trade as agreed with the client.

The client advisors had also 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.

In some instances, the client advisors had also overcharged clients in excess of the fees set out in the bank’s fee disclosure documents to clients. 

“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,” MAS said in a statement on Thursday.

“In addition, internal system weaknesses enabled the client advisors to increase the spread post-trade in the order management system,” the central bank added. “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.”

UBS has admitted liability for its client advisors' actions, and has paid MAS the civil penalty.

Designed to complement criminal sanctions and provide a nuanced approach to combat market misconduct, a civil penalty action is not a criminal action and does not attract criminal sanctions.

While the civil penalty action by MAS against UBS relates to transactions executed from 2014 onwards in Singapore-managed accounts, 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.

MAS added that it had conducted an inspection in 2018 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,” said MAS. 

MAS has instructed UBS to appoint an independent party to validate the adequacy and effectiveness of the bank’s remediation measures. UBS is also required to report the reviewer’s findings to MAS.

In a media statement on Thursday, a UBS spokesperson called the behavior of the individuals involved “unacceptable”.

“This finally resolves the matter that we had self-identified and reported to the regulators in Hong Kong and Singapore. The self-reporting included a plan to fully reimburse the affected wealth management clients and is limited to a very small percentage of all transactions processed through the bank's order processing system during this period,” the spokesperson added.

The civil penalty action by MAS comes just two days after UBS was fined HK$400 million ($70 million) by the Hong Kong Securities and Futures Commission (SFC).

The Hong Kong regulator said the investment bank had overcharged and misled wealthy clients for many years without detection. 

Between 2008 and 2015, clients of the bank’s wealth management division in Hong Kong were reportedly forced to pay more for bonds and structured debt products, with the addition of a further “spread” to trades that clients had requested. 

After discovering the misconduct, the bank had reportedly taken two years before reporting the matter to authorities.

The bank “fell far short of these expectations by systematically overcharging a very large number of clients over many years,” Ashley Alder, CEO of the SFC, said in a statement.

“Although each overcharge represented a fraction of each trade, UBS’s misconduct involved deception and a pervasive abuse of trust resulting in significant additional revenue for UBS to which it was not entitled,” Alder added. 

This was the joint-highest fine imposed by the SFC – equaling the penalty imposed on HSBC Private Bank (Suisse) in 2017 for the sale of Lehman Brothers-linked structured products to customers with low-risk appetite.

On top of the HK$400 million fine imposed by the SFC, UBS has also agreed to repay about HK$200 million to the affected clients in Hong Kong.