The Financial Services Authority (FSA) has fined UBS $14.7m for exposing customers to unacceptable risks in the sale of the AIG Enhanced Variable Rate Fund.

The Swiss bank sold the AIG fund to about 2,000 high net worth investors between 2003 and 2008 with approximately $5.4bn in initial investment. The fund sought to enhance returns by investing in floating rate notes and asset backed securities.

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The fine is the latest in a series of penalties the Zurich-based bank is set to pay. It was fined $1.5 billion last December for its part in the Libor-rigging scandal and $30m for unauthorised transactions.

Coutts, RBS’s wealth management unit, was fined $9.8m by the FSA in November 2011 for failings relating to the sale of the same AIG fund.

 

UBS to pay $15.5m to clients

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The FSA’s report revealed that a large part of those AIG funds were mis-sold exposing customers to considerable risks and losses, especially after the Lehman Brothers’ crash that caused a sudden fall in the AIG’s share price. The incident does not affect current investments.

UBS is also accused of failing to respond to customer complaints. The bank is to pay an estimated $15.5m in compensation to customers.

As UBS agreed to settle at an early stage, the initial $21m fine was reduced by 30% to $14.7m.

"We are pleased that we can put this issue that dates back to 2008 behind us, so that we can continue to focus on serving our clients and executing our strategy," the bank said in a statement.

"UBS’s conduct fell far short of what its customers deserved and what the FSA requires. It failed to ensure it understood the product it was selling, failed to recommend it to the right customers and failed to take effective action in the financial crisis when the problems with the Fund came to the fore," said Tracey McDermott, Director of the FSA’s enforcement and financial crime section.