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UBS: FSA fine represents proportionate regulatory action

18th November 2005
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UBS's reporting system for certain transactions involving outside brokers has been found to be faulty, leading to a GBP100,000 fine from the FSA, the UK financial regulator. Although the fine mars an otherwise successful year for UBS, the FSA's action represents a measured response to an incident that the Swiss bank itself brought to light.

The FSA has announced that it will fine UBS Wealth Management, the private banking arm of UBS, GBP100,000, after uncovering irregularities in its reporting of certain transactions in financial instruments with outside brokers.

The FSA discovered that since October 1999, UBS had been routinely reporting client equity transactions as client sales, where the transactions were executed by it with outside brokers. This came to light after a suspicious transaction was reviewed by the FSA when UBS Wealth Management itself brought the transaction to its attention, as required by law.

The fine is the second to be levied for irregularities such as these, and will be the first to test the FSA's new procedures for speeding up the process of punishment by fine. UBS agreed to the fine of GBP100,000 without going before the Regulatory Decisions Commission, the body usually responsible for determining fines and punishments. The FSA said that it believed the incident had been a genuine error, that UBS had not been "deliberate or reckless" and that it was confident the bank would work hard to improve its systems.

The action by the FSA comes on the tail of sustained progress for UBS. 2005 has largely been a year of success and growth for the Swiss bank, and the fine imposed for a long-running problem in reporting systems will surely dampen the current mood. The fact that this problem has persisted unnoticed for so long will also concern those within the organization tasked with overseeing compliance in this area.

However, UBS can take heart from the fact that there is no suggestion of deliberate wrongdoing in this case, despite the high value of the fine. Meanwhile, the FSA will view the case as an example of how its new system, bypassing the formal intervention of the RDC, can be made to work in an effective and expeditious manner. That is an encouraging reflection on the underlying health of the wealth management sector.

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