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UBS Group to Pay $15M for Failures in Sale Supervisory

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UBS Financial Services, a wing of UBS Group AG (UBS - Free Report) , has agreed to settle charges of the Securities and Exchange Commission (SEC) related to its supervisory role in selling financial products by paying more than $15 million. Per the regulator, UBS Financial failed to make its sales force trained in selling some complex financial products -- reverse convertible notes (RCNs) -- with the knowledge of their critical aspects.

The UBS unit has agreed to pay disgorgement of $8,227,566 in profits from the sales, along with $798,316 in interest and a $6 million penalty. The company did not admit or deny the charges.

Why the Charges?

RCNs are complex securities that have embedded derivatives whose performance is based on the concept of implied volatility. Lack of adequate training and education made some sales people involve in unsuitable recommendations to certain retail customers.

UBS Financial sold around $548 million of RCNs to more than 8,700 relatively inexperienced retail customers. Many of the customers, including some retirees, were with low-risk tolerance.

Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit – Michael J. Osnato – stated, “When it comes to complex financial products, investors are especially dependent upon firms making sure their financial advisors comprehend the potential risks and rewards of the investments they are recommending.  The SEC takes a dim view of firms that fall short in their obligations.”

UBS Group has also been earlier fined with several other lawsuits. In May 2016, the bank agreed to pay more than $500 million to the regulator over allegations of manipulating currency exchange and interest rates. Further, in 2009, UBS Group settled with U.S. authorities for $780 million against charges of helping the U.S. account holders evade taxation.

Shares of UBS declined about 20% over the last year. The stock has seen downward earnings estimate revisions for the current fiscal year over the last 30 days as well, indicating further downside.

However, the following stocks in the foreign bank space with a better estimate revisions trend are worth considering: Itaú Unibanco Holding S.A. (ITUB - Free Report) , Banco Macro S.A. (BMA - Free Report) and The Bank of Nova Scotia (BNS - Free Report) .

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