UBS Fined for Supervisory Failures Related to Adviser Misconduct, Improper Securities Transactions
UBS Financial Services Inc., the global brokerage firm and investment adviser, has agreed to pay an $850,000 fine as part of a settlement with the Financial Industry Regulatory Authority.
According to FINRA, from at least September 2010 to July 2021, UBS failed to supervise a registered representative who sold more than $7.2 million of private, third-party securities to at least 30 of his UBS clients. The representative acted outside the scope of his employment and sold a “fixed annuity” product offered by an entity formed by his college friend. These “fixed annuities” were not approved or offered by UBS and were not, in fact, fixed annuities, but rather unregistered securities.
At least 10 of the representative’s customers wired approximately $1.8 million from their UBS accounts to the third-party company’s bank accounts, and all of the representative’s customers lost most, if not all, of their investments. After discovering the representative’s misconduct, UBS repaid the customers who had invested in the third-party company their principal plus the amount of appreciation the third-party company listed on the customers’ statements, totaling more than $17 million in restitution.
FINRA also stated that UBS’s supervisory system was not reasonably designed to detect and monitor transmittals of customer funds to third parties. Specifically, the firm’s automated surveillance system failed to detect instances where multiple, unrelated customers transferred funds from their UBS accounts to the same external party, known as many-to-one transfers. Such transfers can be a red flag for fraud or undisclosed outside business activities. FINRA also claimed that UBS failed to follow up on other potential red flags, such as approving transfers without investigating the third-party company.
Per FINRA, UBS violated Rule 3110 which requires that member firms establish and maintain a supervisory system to monitor transmittals of customer funds. Without admitting or denying the claims, UBS agreed to the $850,000 fine and a censure, and the firm will review and enhance its supervisory procedures related to the transmittal of customer funds to third parties.
Headquartered in Weehawken, N.J., UBS has more than 11,000 registered representatives at more than 800 branch locations. UBS is an international, full-service brokerage firm.
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