Hong Kong's Securities and Futures Commission (SFC) has fined UBS AG $8m for misclassifying professional investors (PIs) for over 12 years due to inadequate internal systems.
An SFC investigation found that between 2009 and July 2022 UBS used automated processes to verify clients' PI status, but these were based on the firm’s misinterpretation of the minimum portfolio requirement under the Securities and Futures Professional Investor Rules for joint client accounts.
This meant UBS incorrectly classified certain joint accounts as PI accounts when they should have been classified as non-professional investors’ accounts (non-PI clients), which ultimately led to UBS selling investment products intended for PIs only to some non-PI clients.
UBS also offered its securities pooled lending (SPL) service to some non-PI clients without getting the relevant authorisation.
In August 2021, the SFC fined UBS $9.8m for various regulatory breaches, including its failure to implement sufficient controls to ensure that its SPL service was only subscribed to by PIs.
A subsequent look-back review conducted by UBS covering the four-year period between July 2018 and July 2022 identified that a total of 560 joint accounts booked and/or managed in Hong Kong were misclassified as PI accounts. UBS self-reported the issues and findings from the Hong Kong Monetary Authority to the SFC.
The SFC has said UBS “failed to act with due skill, and care and establish effective systems and controls to ensure accurate classification of PIs and compliance with the applicable regulatory requirements.”
