FINRA Fines UBS $850K for Inadequate Supervision of Adviser

UBS Financial Services Inc. was fined $850,000 by FINRA for supervisory failures related to a representative's unauthorized sale of over $7.2 million in unregistered securities.

July 16, 2024

UBS Financial Services Inc., a global brokerage firm and investment adviser, has agreed to an $850,000 fine as part of a settlement with FINRA.

From September 2010 to July 2021, UBS failed to properly supervise a registered representative who sold over $7.2 million in unauthorized private securities to at least 30 UBS clients. This representative sold a so-called "fixed annuity" product from a company created by a college friend, which was actually an unregistered security and not an approved product by UBS.

At least 10 clients wired around $1.8 million from their UBS accounts to this third-party company's bank accounts, resulting in significant losses. UBS discovered the misconduct and repaid the affected clients their principal investments plus the appreciation amounts listed on their statements, totaling over $17 million in restitution.

FINRA criticized UBS’s supervisory system, stating it was not adequately designed to detect and monitor the transfer of customer funds to third parties. The firm's automated surveillance system failed to flag multiple, unrelated clients transferring funds to the same external entity, a common indicator of fraud or undisclosed business activities. Additionally, UBS did not investigate other potential red flags, such as approving transfers without verifying the third-party company.

UBS violated FINRA Rule 3110, which mandates that member firms maintain a supervisory system to monitor customer fund transmittals. Without admitting or denying the allegations, UBS agreed to pay the fine, accept a censure, and review and enhance its supervisory procedures for fund transfers to third parties.

Headquartered in Weehawken, New Jersey, UBS has over 11,000 registered representatives across more than 800 branch locations and operates as an international, full-service brokerage firm.