Swiss Bank UBS has been fined HK$400 for overcharging up to 5000 clients for nearly a decade and other serious systematic internal control failures, The Hong Kong Security and Futures Commission (SFC) said in a statement issued on 11 Nov. During an investigation, the SFC found that UBS not only failed to observe its fundamental and overarching duty to act in its clients’ best interests but also abused the trust of unsuspecting clients by failing to disclose conflicts of interest and overcharging them in opaque trades. The overcharge practices affected about 5,000 Hong Kong-managed client accounts in about 28,700 transactions.
SFC’s investigations revealed that:
- between 2008 and 2015, the client advisors (CAs) and client advisors’ assistants (CAAs) in UBS’s Wealth Management division had overcharged clients when conducting bond and structured note trades by increasing the spread charged after the execution of trades without clients’ knowledge; and
- between 2008 and 2017, UBS had also charged its clients fees in excess of its standard disclosures or rates.
Giving specific details about the malpractice, the SFC revealed that following their clients’ requests to buy or sell products, the Client Advisors (CAs) and Client Advisors’ Assistants (CAAs) would enter the limit order price of the clients’ trades into UBS’s client order processing system. In circumstances where the actual execution price achieved in the market was better than the limit order price, the CAs and CAAs would increase the spread after executing the trades in order to retain the price improvement for UBS without agreement with, or disclosure to, the clients. They also sometimes misreported the execution price or spread to the clients. On some occasions, they would also falsify the account statements issued to financial intermediaries, who were authorized to trade for clients, by misreporting the spread amount to conceal the overcharges.
This fine imposed on UBS is equal to the largest ever fine levied on a bank in Hong Kong. In 2017, HSBC’s private banking unit was also fined $HK400 million over the sale of Lehman Brothers structured products to customers for five years from 2003.
UBS has undertaken to compensate the affected clients by repaying them the full value of the overcharged amount together with interest. The total repayment amount is approximately HK$200 million and covers overcharges made through post-trade spread increases and charges in excess of standard disclosures or rates between 2008 and 2017.
SFC’s full report can be accessed here.
Date: 12 Nov 2019
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