SFC fines UBS HK$11.55m for regulatory breaches
SFC reprimands and fines UBS AG and UBS Securities Asia Limited $11.55 million for regulatory breaches
Issue date: 2021-08-03 16:36:26
The Securities and Futures Commission (SFC) has reprimanded and fined UBS AG and UBS Securities Asia Limited (UBSSAL) (collectively, UBS) $9.8 million and $1.75 million respectively over various regulatory breaches (Notes 1 & 2).
A number of issues concerning UBS’s systems and controls were brought to the SFC’s attention between September 2018 and November 2020 by self-reports from UBS or referrals of findings from the Hong Kong Monetary Authority (HKMA).
The SFC’s investigation found that between May 2004 and May 2018, UBS failed to make proper disclosure of its financial interests in some Hong Kong listed companies covered in its research reports. The failure was caused by multiple data feed logic errors in a legacy data source used by UBS for tracking its shareholding positions.
The SFC also found that UBS AG failed to:
- obtain valid standing authorities from 91 clients who were not qualified as professional investors and issue contract notes to them between November 2012 and February 2019 in respect of 913 securities pooled lending transactions entered into with these clients;
- record client order instructions received through 35 telephone lines between August 2017 and June 2019, involving over 2,000 transactions executed for more than 400 clients (Note 3);
- follow applicable regulatory guidelines relating to the assessment of clients’ derivatives knowledge between January 2018 and June 2020 by failing to obtain trading evidence from clients who declared that they had conducted five or more derivative trades in the three years before declaration; and
- disclose to 15 clients the “stop loss event” feature of a structured note issued by an issuer, and assure itself that the clients understood the risks associated with that feature before selling them the note between October 2017 and February 2020.
The SFC considers that UBS failed to act with due skill and care and put in place adequate systems and controls to ensure compliance with the applicable regulatory requirements (Note 4).
In deciding the sanction, the SFC took into account all relevant circumstances, including:
- UBS’s remedial actions to strengthen its internal controls and systems upon identifying the breaches;
- UBS AG’s offer to compensate the clients affected by its failure to disclose the “stop loss event” feature of the structured note;
- UBS AG’s agreement to engage an independent reviewer to review the effectiveness and adequacy of its remedial measures taken in relation to its telephone recording failures; and
- UBS’s cooperation with the SFC in resolving the SFC’s concerns.
- UBS AG is registered to carry on 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 under the Securities and Futures Ordinance (SFO).
- UBSSAL is licensed to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts) and Type 4 (advising on securities) regulated activities under the SFO.
- The HKMA referred its findings to the SFC following an investigation into UBS AG’s self-reports regarding the telephone recording failures.
- Details of the relevant regulatory requirements are set out in the Statement of Disciplinary Action.