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UBS Financial Services

Friday, September 20, 2013
Docket No. 13-025-S

Docket no. 13-025-S

In the Matter of: UBS FINANCIAL SERVICES, INC., Respondent


WHEREAS, UBS Financial Services, Inc. ("UBS") is a broker-dealer registered in the state of Vermont, with a Central Registration Depository ("CRD") number of 8174; and

State securities regulators, as part of a North American Securities Administrators Association ("NASAA") working group (the "NASAA Working Group"), have conducted an investigation into the registration of UBS Client Service Associates ("CSAs") and UBS' s supervisory system with respect to the registrations of CSAs; and

UBS has cooperated with state securities regulators and the NASAA Working Group conducting the investigation by responding to inquiries, providing documentary evidence and other materials, and providing access to facts relating to the investigations; and

UBS has advised the NASAA Working Group of its agreement to resolve the investigation pursuant to the terms specified in this Consent Order (the "Order") and pursuant to the multi-state resolution recommended by the NASAA Working Group; and

UBS has made certain changes in its supervisory system with respect to the registration of CSAs, and will make certain payments in accordance with the terms of this Order; and

UBS elects to waive permanently any right to a hearing and appeal under 9 V.S.A. Chapter 150, the Vermont Uniform Securities Act ("VUSA"), and 3 V.S.A. Chapter 25, the Vermont Administrative Procedure Act, with respect to this Order; and

Solely for the purpose of terminating the NASAA working group investigation, and in settlement of the issues contained in this Order, UBS, without admitting or denying the findings of fact or conclusions of law contained in this Order, consents to the entry of this Order.

NOW, THEREFORE, the Commissioner, as administrator of the VUSA, hereby enters this Order:


1. UBS admits the jurisdiction of the Commissioner in this matter.

Background on Client Service Associates

2. The CSAs function as sales assistants and typically provide administrative and sales support to one or more of UBS's Financial Advisors ("FAs"). There are different titles within the CSA position, including Client Service Associate, Registered Client Associate, and Senior Registered Client Service Associate.

3. The responsibilities of CSAs specifically include, among other things:

a. Extending invitations to UBS-sponsored events;

b. Providing published quotations to clients, if asked;

c. Inquiring whether a current or prospective client wishes to discuss investments with a registered representative of UBS; and

d. Entering an order, provided the order was accepted by an appropriately registered individual in those instances where the CSA is not registered in the state in which the client is located.

4. In addition to the responsibilities described above, and of particular significance to this Order, some CSAs are permitted to accept orders from clients. As discussed below, UBS's written policies and procedures require that any CSAs accepting client orders first obtain the necessary licenses and comply with self-regulatory organization and state registration requirements.

5. UBS issued a revised policy on registration requirements on March 28, 2007, which stated, inter alia, that managers are responsible for ensuring that all employees under their supervision are appropriately registered and licensed to perform the functions of their position.

6. During the period of 2004 to 2010, UBS employed, on average, approximately 2,277 CSAs per year.

Registration Required

7. The Provisions of 9 V.S.A. § 5402 provide the requirements for the registration of agents to engage in the sale of securities.

8. Pursuant to the general prohibition under 9 V.S.A. § 5402(a), as cited to generally in paragraph 7 above, it is unlawful for an individual to transact business (including accepting unsolicited orders) as an agent in Vermont without being registered as an agent, unless the individual is exempt from registration requirements under subsection (b) And pursuant to subsection (d) it is unlawful for a broker-dealer to employ or associate with an agent who transacts business in the state unless the agent is registered or is exempt from registration under subsection (b). The exemptions listed under subsection (b) do not apply in this case. Therefore agent registration of CSAs who accepted orders was and is required under the VUSA.

9. Pursuant to 9 V.S.A. §§ 5402, 5412(c), (d) and 5604, the Commissioner may impose a civil penalty to a broker-dealer for selling securities in Vermont through agents other than registered agents and for failing to supervise those agents.

UBS Requires Registration of Client Service Associates

10. UBS requires CSAs to become properly registered, licensed, and appointed with the necessary self-regulatory organizations, state regulators, and business entities before taking solicited or unsolicited transaction orders from clients in securities or other financial products, receiving transaction-related compensation, or otherwise engaging in the offer or sale of securities or other financial products.

11. UBS's policies and procedures state that CSAs engaging in securities activities must register in, at a minimum, the state from which they conduct business (i.e. home state).

12. Additionally, UBS also required CSAs to register in states in which a CSA anticipated:

a. Maintaining an additional place of business;

b. Prospecting clients;

c. Soliciting new accounts;

d. Servicing existing accounts; or

e. Effecting any securities transactions and/or receiving compensation as a result of such transactions.

Regulatory Investigation and Findings

13. In March 2010, state securities regulators initiated an investigation into the practices of UBS in connection with its CSA registrations.

14. The multi-state investigation focused on systemic issues with UBS's CSA registrations and related supervisory structure instead of attempting to identify each incidence of unregistered activity. Specifically, with respect to the order entry process, the investigation found:

a. After accepting a client order, UBS CSAs accessed UBS's automated Consolidated Order Entry System ("COE") to enter the order;

b. When entering an order through the COE, CSAs were asked by the system "Did another person receive this order?" If the question was answered "no," the order was processed. If the question was answered "yes," a free text field appeared for the CSA to enter the name or employee code of the person who accepted the order;

c. In some instances, when this question was answered "yes," CSAs did not include a name or code of the employee who accepted the order in the free text field. In other instances, the free text field did not contain accurate identifying information about the employee who accepted the trade;

d. Further, while UBS maintained a system to verify that the FA of record for a particular account was registered in the state where the client resided, UBS did not maintain a system to verify the registration status of the employee accepting a client order when that employee was not the FA for the account.

15. The multi-state investigation found that on certain occasions some UBS CSAs, while Series 7 registered and registered in one or more other states, accepted unsolicited orders to buy or sell securities from clients residing in Vermont at times when the CSAs were not appropriately registered in Vermont.

UBS' s Remedial Measure and Cooperation

16. In November 2010, after the initial inquiry by state securities regulators, UBS enhanced the COE System to automatically validate the registration of employees during the order entry process.

17. Specifically with respect to branch support staff (i.e. CSAs), employees are now required to indicate the person who directly accepted the order from a client by selecting "self” or "other" within the electronic ticket on the COE.

18. If a CSA selects "self', the COE validates whether the CSA who accepted the order is properly registered in the state where the client resides.

19. If a CSA selects "other," the CSA must provide identifying information of the person who accepted the order. The COE system subsequently validates whether the identified person who accepted the order is properly registered in the state where the client resides.

20. If the identified person is not properly registered in the client's state of residence, the order is routed to branch management who must ensure that a properly registered person accepts or confirms the order before execution.

21. UBS provided timely responses and substantial cooperation in connection with this regulatory investigation.


1. The Commissioner has jurisdiction over this matter pursuant to the VUSA.

2. UBS's failure to establish an adequate system to monitor the registration status of persons accepting client orders constitutes violations for failure to establish a reasonably designed supervisory system and/or failure to establish, maintain, and enforce reasonably designed procedures pursuant to 9 V.S.A. § 5412(d)(9).

3. UBS's maintenance of order tickets which do not accurately identify the person who accepted client orders constitutes violations for failure to maintain all books and records required to be kept by the Securities and Exchange Commission or the state agency pursuant to 9 V .S.A. 1 §5411.

4. UBS's acceptance of orders for purchases and sales of securities from clients residing in Vermont through CSAs not registered in Vermont constitute violations of 9 V.S.A. §5402(d) for use/employment of unregistered agents/sales representatives.

5. Pursuant to 9 V.S.A. §§ 5402, 5411, 5412, 5604, UBS's acceptance of orders for purchases and sales of securities in Vermont through agents not registered in Vermont constitute bases to order UBS to cease and desist engaging in the sale of securities in Vermont through unregistered agents.

6. Pursuant to 9 V.S.A. §§ 5412 and 5604, the violations described above constitute bases for the assessment of an administrative penalty against UBS.

7. The Commissioner finds the following relief appropriate and in the public interest.


On the basis of the Findings of Facts, Conclusions of Law, and UBS's consent to the entry of this Order,


1. This Order concludes the investigation by the Commissioner and any other action that the Commissioner could commence against UBS and its officers, directors and present or former employees under applicable Vermont law on behalf of Vermont as it relates to unregistered activity in Vermont by UBS's CSAs and UBS's supervision of CSA registrations during the period from January 1, 2004 through December 31, 2010.

2. This Order is entered into solely for the purpose of resolving the referenced multi-state investigation, and is not intended to be used for any other purpose. For any person or entity not a party to the Order, this Order does not limit or create any private rights or remedies against UBS including, limit or create liability of UBS, or limit or create defenses of UBS, to any claims.

3. UBS is hereby ordered to comply with the Undertakings contained herein.

4. UBS is hereby ordered to cease and desist from engaging in the acceptance of orders for purchases and sales of securities in Vermont through persons not registered with the Vermont Department of Financial Regulation as agents of UBS.

5. UBS is hereby ordered to pay the sum of $63,631.24 to the Vermont Department of Financial Regulation within ten days of the date of this Order. The monies received by the Department pursuant to this paragraph may be used, in accordance with Vermont law, to reimburse the Department for costs incurred during the investigation of this matter, for securities and investor education, and/or for other securities and investor protection purposes, at the sole discretion of the Commissioner.

6. This order is not intended by the Commissioner to subject any Covered Person to

any disqualifications under the laws of the United States, any state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands, or under the rules or regulations of any securities or commodities regulator or self-regulatory organization, including, without limitation, any disqualification from relying upon the state or federal registration exemptions or safe harbor provisions. "Covered Person," means UBS or any of its affiliates and their current or former officers or former officers, directors, employees, or other persons that could otherwise be disqualified as a result of the Orders (as defined below).

7. This Order and the order of any other State in any proceeding related to UBS's agreement to resolve the above referenced multi-state investigation (collectively, the "Orders") shall not disqualify any Covered Person from any business that they otherwise are qualified, licensed or permitted to perform under applicable securities laws or regulations of Vermont and any disqualifications from relying upon this state's registration exemptions or safe harbor provisions that arise from the Orders are hereby waived.

8. This Order shall be binding upon UBS and its successors and assigns as well as to successors and assigns of relevant affiliates with respect to all conduct subject to the provisions above and all future obligations, responsibilities, undertakings, commitments, limitations, restrictions, events, and conditions.


UBS hereby acknowledges that it has been served with a copy of this Consent Order ("Order"), has read the foregoing Order, is aware of its right to a hearing and appeal in this matter, and has waived the same.

UBS admits the jurisdiction of the Commissioner of the Vermont Department of Financial Regulation, neither admits nor denies the Findings of Facts and Conclusions of Law contained in this Order and consents to entry of this Order by the Commissioner as settlement of the issues contained in this Order.

UBS agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal or local tax for any administrative monetary penalty that UBS shall pay pursuant to this Order.

UBS states that no promise of any kind or nature whatsoever was made to it to induce it to enter into this Order and it has entered into this Order voluntarily.