FINRA imposes $2m fine on UBS Financial Services for failures relating to municipal securities short positions

The United States Financial Industry Regulatory Authority (FINRA) today announces it has imposed a $2 million fine on UBS Financial Services Inc. due to the firm’s repeated failures in timely addressing municipal short positions and the inaccurate representation of the tax status of thousands of interest payments to customers.

FINRA also required UBS to pay restitution to customers who may have incurred any increased state tax liabilities, to pay the IRS to relieve customers of any additional federal income tax owed, and to certify within 90 days that the firm has taken appropriate corrective measures. The Authority notes that it previously sanctioned UBS for its failures in this area in 2015.

FINRA found that from August 2015 (when the Authority previously sanctioned UBS for similar violations) through the end of 2017, UBS continued to fail to timely identify and properly address certain short positions in municipal securities. As a result, UBS inaccurately represented on customer account statements and Forms 1099 that interest payments for 2,853 positions in municipal securities were tax-exempt when, in fact, they were taxable. The firm also inaccurately represented on approximately 950 additional customer account statements and Forms 1099 that interest payments were taxable, when they were tax-exempt.

FINRA found that these failures stemmed from UBS’s continued failure to establish appropriate supervisory systems and written supervisory procedures to timely identify short positions in municipal securities and its failure to provide reasonable guidance to its registered representatives instructing them how to address the short positions.

In settling this matter, UBS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.