The asset manager was found to have miss-sold its AIG Enhanced Variable Rate Fund, exposing customers to an unacceptable level of risk, and subsequently failing to properly address customer complaints about the fund.
Had it not settled early, UBS would have faced a higher fine of £13.5m.
The fund was sold to 1,998 high net worth investors between December 2003 and September 2008. An initial £3.5bn was held in the fund, expected to be invested in financial and money market instruments. However, unbeknown to many investors, a proportion was committed to higher-risk asset-backed securities.
It was subsequently suspended, following the collapse of Lehman Brothers in September 2008 which saw the AIG share price fall and customers seek to withdraw investments. At the point of suspension, the fund had 565 customers and was valued at £816m.
UBS also failed to keep adequate sales records, detailing whether investors were sold the product on a discretionary or non-discretionary basis, and it did not ensure that its advisers provided a fair and accurate explanation of the risks when reassuring existing customers.
The firm was found to have breached FSA Principle nine (ensuring the suitability of advice) and Principle six (treating customers fairly).
Tracey McDermott, director of enforcement and financial crime, said: “UBS’ conduct fell far short of what its customers deserved and what the FSA requires. It failed to ensure it understood the product it was selling, failed to recommend it to the right customers and failed to take effective action in the financial crisis when the problems with the fund came to the fore.
“We have made our expectations in relation to the wealth management industry clear. UBS has paid the price for its failures and we will continue to take strong action against firms who fail to do the right thing for their customers.”
