UBS faces $850k fine over years-long wire transfer supervision failure

Finra has imposed an $850,000 fine on UBS after an investigation revealed the firm failed to establish and maintain an adequate supervisory system, leading to millions in losses for at least 30 customers.

This supervisory lapse, which persisted from at least September 2010 to July 2021, allowed a registered representative to sell unapproved securities to UBS Financial Services clients without detection, according to the regulator.

According to the AWC published Monday, a UBS representative went outside the scope of his employment by selling securities offered by a third party, leading at least 30 UBS customers to invest approximately $1.8 million through direct wire transfers from their accounts.

In one instance, a sales assistant's email to a supervisor requesting the waiver of a wire transfer fee described the recipient as an entity for customer investments.

“Although the sales assistant’s email referred to Company A as an entity to which the representative’s customers sent money ‘for investing,’ the supervisor failed to reasonably investigate Company A or the representative’s involvement in it,” Finra said.

Company A, according to Finra, was an entity set up by the representative’s college friend and business acquaintance. The money sent to the company, totaling $7.2 million over the course of the relevant period, was invested in fixed annuities that the firm did not approve.

During the period in question, Finra said the firm did not have an effective system to review third-party fund transmittals, despite regulatory reminders.

In November 2009, Finra issued Regulatory Notice 09-64, highlighting the necessity for firms to enforce policies and procedures governing the withdrawal or transmittal of customer assets. These policies should be “reasonably designed to review and monitor all instructions to transmit or withdraw assets from customer accounts.”

While UBS had an automated surveillance system for wire transfers, Finra found it was insufficient as it did not detect and monitor instances where multiple, unrelated customers transferred funds to the same external party. Such many-to-one transfers can be indicative of fraud, conversion, private securities transactions, or undisclosed outside business activities.

The lapses only came to light when a former UBS customer sought to withdraw her investment from the third party in 2021.

“Indeed, those UBS customers who effected Many-to-One Transfers to Company A … lost most, if not the entirety, of their investments in Company A,” Finra said. “Given the hundre(is of thousands of outgoing third-party wire transfers that UBS processed each year, the firm's failure to establish any system to surveil for Many-to-One Transfers was unreasonable.”

UBS has since reimbursed the affected customers with over $17 million in restitution.

Finra said UBS’s supervisory failures were in violation of Finra Rules 3110 and 2010, as well as NASD Rules 3010 and 3012.

The firm accepted the fine from Finra, as well as a censure from the regulator, without admitting or denying the findings.