As part of an ongoing effort to protect investors in the sale of complex exchange-traded products (ETPs), the U.S. Securities and Exchange Commission (SEC) reached a US$8-million settlement with UBS Financial Services Inc.
According to the SEC’s order settling the action, while UBS prohibited its reps from soliciting sales of a complex, volatility-linked ETP to brokerage customers, it didn’t put similar limits on the product’s use in discretionary managed accounts.
As a result, the regulator found that certain financial advisors “had a flawed understanding of the appropriate use of the volatility-linked ETP” and ended up purchasing the product and holding it in client accounts for extended periods, “including hundreds of accounts that held the product for over a year, resulting in meaningful losses.”
The firm settled the regulator’s allegations without admitting or denying the SEC’s findings. It agreed to pay US$8.1 million in civil penalties, disgorgement and interest, which will be distributed to harmed investors.
The SEC’s order also noted that UBS voluntarily reviewed the use of volatility-linked ETPs in its managed account program, and removed them in 2018, before being contacted by regulators.
The SEC said this is the sixth case brought as part of its initiative to combat unsuitable sales of complex ETPs.
“Advisory firms must protect clients from inappropriate investments in complex financial products,” said Daniel Michael, chief of the SEC enforcement division’s complex financial instruments unit.
“We will continue to scrutinize firms’ policies and procedures related to these risky products, and we will take action when they are inadequate.”