UBS pays $ 8 million for alleged ETP compliance violations


    UBS will pay more than $ 8 million to pay fees to the Securities and Exchange Commission (SEC), which argued the company failed to ensure compliance with its financial advisors who related an exchange traded product (ETP) recommended with short term market volatility.

    The comparison with UBS is the second of the Commission’s ETP initiativeTo take action against financial services companies selling inappropriate funds to retail clients. Last November, the SEC has settled the fees with five companies faced its own alleged compliance violations, including Summit Financial Group and Securities America Advisors.

    “Advisory firms must protect clients from inappropriate investments in complex financial products,” said Daniel Michael, head of the Enforcement Division’s complex financial instruments department, in a statement on the UBS mandate. “We will continue to review company policies and procedures with respect to these risky products and take action if they are inappropriate.”

    The ETP in question was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) and was designed to generate returns by mapping short-term volatility expectations as measured against derivatives of a volatility index. However, the issuer of the product warned UBS that, according to the SEC regulation, the fund was not designed for long-term holdings. In November 2009, representatives of the ETP issuer told UBS that it was “inappropriate” to hold client assets in VXX for an extended period and that doing so would likely cause client harm.

    While UBS allowed the ETP to be sold on its brokerage platform, it restricted sales, according to the SEC. In 2011, UBS’s ETP committee banned brokerage agents from selling the ETP, and in 2016 they only allowed unsolicited sales to clients with an aggressive risk profile and a network of at least $ 1 million (which would increase to $ 10 million the next year Dollar increased).

    But the company hasn’t placed similar restrictions on financial advisors in the company’s Portfolio Management Program (PMP), even though it understands the risks, according to the SEC. Advisers with more than five years of experience were able to “act at their discretion” when investing client assets in VXX and UBS has not, according to the Commission, imposed any restrictions based on a client’s risk profile, net worth or income.

    The company limited advisors’ investments in ETPs by stating that the inventory of volatility ETPs on client accounts could not exceed three percent of an account’s assets. The system has been set up to send a notification if a violation is not resolved within 90 days and close the account if it is not resolved within 180 days. However, UBS has not properly implemented the system for monitoring this limit for more than five years, as ordered.

    Approximately 1,882 PMP accounts held the VXX product for an extended period of time, including hundreds of accounts that held it for more than a year as per the order. Many of these accounts lost a “significant percentage” of the value of their investments in VXX, including some that lost more than 75%.

    “After fully working with the SEC, UBS is pleased to have resolved this matter in connection with the company’s policies and procedures for a product in one of its discretionary trading programs between 2016 and 2018,” said a UBS spokesman about the settlement. “As confirmed by the SEC, UBS proactively reviewed the product and removed it from its program prior to being contacted by the SEC.”

    The company’s ETP committee recommended that VXX be removed from the PMP platform in October 2017, which the Commission noted in the order before contacting the company as part of its investigation. In the context of the settlement, UBS agreed to an omission and a conviction without admitting or denying the findings of the commission. In addition, the company will pay $ 112,274 in levy and prejudice interest and a $ 8 million civil fine that will be distributed among the affected investors.


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