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Securities and Futures Commission, UBS
A Hong Kong regulator has reprimanded and fined UBS a total of HK$8 million ($1.029 million) for deficiencies in its internal systems and controls. These deficiencies resulted in the firm’s failure to ensure that professional investors (PIs) were accurately classified for more than two years. 

The Securities and Futures Commission’s investigation revealed that between 2009 and July 2022, UBS verified its clients’ PI status by an automated process which was based upon UBS’s misinterpretation of the minimum portfolio requirement under the Securities and Futures (Professional Investor) Rules for certain types of joint client accounts. 

UBS incorrectly classified certain joint accounts as PI accounts when in fact they should have been classified as non-professional investors’ accounts, the Securities and Futures Commission said.

As a result, UBS provided its securities pooled lending service to some non-PI clients without obtaining valid standing authorities for the use of client securities or securities collateral or disclosing the relevant information in the monthly statements issued to them; and offered and sold investment products intended for PIs only (PI-Restricted Products) to some non-PI clients.

The regulator said a review that UBS carried out 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.  

The SFC 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.”

The regulator said that in deciding its sanction, it took into account that UBS’s failings lasted for more than 12 years; the previous disciplinary action against UBS for failures of a similar nature; the look-back review and remedial actions by UBS to strengthen its internal controls and systems upon identifying and self-reporting the breaches; UBS’s cooperation with the SFC in resolving the SFC’s concerns; and that UBS would implement Enhanced Complaint Handling Procedures to review any complaints which may be made by clients potentially misclassified as a PI during the relevant period.