SFC reprimands and fines UBS HK$400 million for overcharging clients and related internal control failures

11 Nov 2019



The Securities and Futures Commission (SFC) has reprimanded and fined UBS AG (UBS) HK$400 million for overcharging its clients over a ten-year period and for related serious systemic internal control failures (Note 1).

UBS has also 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. The overcharge practices affected about 5,000 Hong Kong-managed client accounts in about 28,700 transactions (Note 2).

The SFC considers that UBS not only failed to observe the 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.

Mr Ashley Alder, the SFC’s Chief Executive Officer, said: “The SFC expects all intermediaries to uphold high standards of integrity when managing trades for clients. UBS fell far short of these expectations by systematically overcharging a very large number of clients over many years. 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.”  

The SFC’s investigations revealed that:

Specifically, following their clients’ requests to buy or sell products, the CAs and 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, and 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.

The SFC considers that these malpractices involved a combination of serious systemic failures for a prolonged period of time including inadequate policies, procedures and system controls, lack of staff training and supervision, and failures of the first and second lines of defence functions of UBS.

The SFC’s investigation further found that:

Under the circumstances, the SFC considers UBS failed to:

In deciding the disciplinary sanctions, the SFC took into account all relevant circumstances, including:

End

Notes:

  1. UBS is a registered institution under the SFO to carry on business in Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 7 (providing automated trading services) and Type 9 (asset management) regulated activities.
  2. UBS has engaged an independent reviewer to assess and validate the compensation amount to be paid to the affected clients. They will receive letters from UBS within 1 month notifying them the details of the repayment arrangement.
  3. The reports of the relevant reviews have been or will be provided to the SFC and the Hong Kong Monetary Authority.

A copy of the Statement of Disciplinary Action is available on the SFC website



Page last updated : 11 Nov 2019