The Securities and Futures Commission of Hong Kong has publicly reprimanded and fined UBS AG HK$400 million (US$51.35 million) for the transgressions of its wealth management division. It says that it has disciplined the bank for overcharging its HNW customers and failing to run its internal controls properly.

The SFC has authorised UBS to do 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.

Details of the case

Between 2008 and 2017, according to the SFC, UBS overcharged its clients by increasing the spread after execution of trades without their knowledge and by charging them fees in excess of standard disclosures or rates. The alleged overcharge amounted to approximately HK$180 million or US$23.1 million and it affected about 5,000 clients' accounts, all of them managed in Hong Kong, in about 28,700 transactions.

Between 2008 and 2015, the SFC says that it was normal for the client advisors (CAs) and client advisors’ assistants (CAAs) in UBS’s wealth management division to increase the spread charged to clients after the execution of trades (this was known as a post-trade spread increase or PTSI) in bonds and structured notes. The regulator avers the following.

UBS failed to tell its clients enough about the execution price and the charges that it made in bond and structured-note trades.

In circumstances where the execution price achieved in the market was better than the limit order price placed by the client in buy or sell trades (known as price improvement), the client advisors and their assistants allegedly increased the spread in UBS’s Client Order Processing System (COPS) after the execution of trades for clients in order to retain the price improvement for UBS without agreements with, or disclosures to, the clients.

On some occasions, the CAs and CAAs allegedly misreported the execution price or spread to the clients. In some other cases, the SFC says that they falsified quarterly statements issued to financial intermediaries who were authorised to trade for   clients by misreporting the spread amounts to conceal the overcharges.

The use of PTSI to retain Price Improvement for UBS was found in trades for clients contracted under various types of accounts. The account types involving PTSI practices include General Advisory, Active Portfolio Advisory (APA) Flat Fee, APA Advisory Fee, UBS Advice, Discretionary Mandate (DM) and FIM (financial intermediaries) Desk.

A long list of grave offences

The SFC is of the view that the act of increasing spread after trades to capture the benefit of price improvement unbeknown to HNW clients demonstrates UBS’s failures to: