Hong Kong SFC Fines UBS $1.49 Million for Failure to Disclose Conflict of Interests, Risks and to Qualify Clients
5th August 2021 | Hong Kong
The Hong Kong Securities and Futures Commission (SFC) has fined UBS $1.49 million (HKD 11.55 million) for failure to disclose conflict of interests, risks to clients and to qualify clients as Professional Investors. Between 2018 to 2020, UBS self-reported the findings to Hong Kong Monetary Authority (HKMA). Upon Hong Kong SFC investigation for incidents from 2004 to 2018, UBS failed to disclose financial interests in Hong Kong listed issuers covered in 205 research reports, caused by system data feed logic errors to track shareholding positions. UBS had also failed to qualify 91 clients as Professional Investors, record 2000 transactions on telephone, obtain trading derivative experience declaration from clients and disclose to 15 clients a “stop loss event” feature and the associated risks in a structured note. The Hong Kong SFC fine of $1.49 million (HKD 11.55 million) was imposed, taken into consideration UBS cooperation and rectification actions, and offer to compensate clients for the “stop loss event” in the structured note.
“ Hong Kong SFC Fines UBS $1.49 Million for Failure to Disclose Conflict of Interests, Risks and to Qualify Clients “
Professional Investor definition in Hong Kong: An individual with HKD 8 million or more ($1.03 million), a trust with HKD 40 million or more ($5.14 million), a corporation with portfolio of HKD 8 million or more or total assets of HKD 40 million or more ($5.14 million).
Hong Kong SFC Statement on UBS
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
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.
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About Securities and Futures Commission (HK)
The Securities and Futures Commission (SFC) is an independent statutory body set up in 1989 to regulate Hong Kong’s securities and futures markets.
We derive our investigative, remedial and disciplinary powers from the Securities and Futures Ordinance (SFO) and subsidiary legislation. Operationally independent of the Government of the Hong Kong Special Administrative Region, we are funded mainly by transaction levies and licensing fees.
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