Hong Kong Securities and Futures Commission reprimands and fines UBS AG $8 million for professional investor misclassification

The Hong Kong Securities and Futures Commission has reprimanded and fined UBS AG $8 million for deficiencies in its internal systems and controls that led to inaccurate classification of professional investors for more than 12 years. The failures stemmed from an automated verification process that misinterpreted the minimum portfolio requirement under the Securities and Futures (Professional Investor) Rules for certain joint client accounts. Between 2009 and July 2022, UBS incorrectly treated certain joint accounts as professional investors when they should have been classified as non-professional investors. This resulted in UBS providing its securities pooled lending service to some non-professional investors without obtaining valid standing authorities for the use of client securities or securities collateral and without disclosing required information in monthly statements, and offering and selling products intended only for professional investors to some non-professional investors. A UBS look-back review covering July 2018 to July 2022 identified 560 misclassified joint accounts booked and/or managed in Hong Kong, including 23 accounts that subscribed to the securities pooled lending service (9,190 lending transactions) and 94 accounts that traded professional-investor-restricted products (500 transactions). In setting the sanction, the SFC cited the prolonged duration of the failures, a prior SFC disciplinary action against UBS for similar issues, and UBS’s remedial actions and cooperation. UBS will implement Enhanced Complaint Handling Procedures to review complaints that may be made by clients potentially misclassified as professional investors during the relevant period.