PAINE WEBBER INTERNATIONAL (UK) LIMITED FINED #350,000

22 Aug 2001 12:00 AM

The Financial Services Authority announced today that Paine Webber International (UK) Limited (PWUK) has been severely reprimanded and fined #350,000 for serious compliance failures, including inadequate controls to prevent money laundering. This fine is the second largest that SFA, which is a subsidiary of the Financial Services Authority, has imposed.

PWUK has been disciplined for failing to comply with the FSA Principle that a firm should have adequate internal controls for its business. PWUK has admitted that, between 1 January 1998 and 15 December 1999, it failed to organise and control its internal affairs in a responsible manner in that:

* The firm exposed itself to the risk of money laundering although fortunately no instances of money laundering have been identified. PWUK failed to implement and maintain adequate account opening procedures and, in particular, failed to obtain and record sufficient evidence of customer details. The firm also failed adequately to train and supervise staff in the application of its anti-money laundering procedures.

* The structure and resource of the firm''s compliance department was inadequate. PWUK failed adequately to identify, report and document UK compliance issues. It also failed to support the UK compliance department and have an effective management structure and processes in place. The relationship and communications between PWUK Compliance Department and the rest of the business were not as formal and robust as SFA rules require.

* The firm did not have adequate record keeping systems; it failed to establish and maintain sufficient information in respect of its dealings with customers.

SFA has taken into account in this case that no customer harm or instances of money laundering were identified during the review period and that the firm has worked co-operatively with SFA throughout.

In January 2000, SFA appointed Reporting Accountants to look at the quality of underlying documentation held by PWUK in relation to its customers and counterparties. The Reporting Accountants also looked at the adequacy and effectiveness of the firm''s compliance arrangements, management structure and processes. The results of this review led to the settlement announced today.

NOTES TO EDITORS

1. Paine Webber International (UK) Limited will contribute #10,000 to SFA''s costs.

2. PWUK accepted it was in breach of FSA Principle 9 - Internal Organisation. The Principle states that ''A firm should organise and control its internal affairs in a responsible manner, keeping proper records, and where the firm employs staff or is responsible for the conduct of investment business by others, should have adequate arrangements to ensure that they are suitable, adequately trained and properly supervised and that it has well-defined compliance procedures.''

3. Paine Webber International (UK) Limited (PWUK) is an SFA authorised firm. It is a wholly owned subsidiary of PaineWebber Group Inc. On 3 November 2000, PaineWebber was acquired by UBS AG and PWUK now only exists as a legal entity and SFA registered firm. At the material time, January 1998 to December 1999, PWUK was a multi-product house trading on its own and its parents'' book with some 275 London based employees.

4. The Financial Services Authority gains a new statutory objective under the Financial Services and Markets Act 2000 to fight financial crime. This will come into effect from 30 November 2001. The FSA will become a criminal prosecuting authority for breaches of the Money Laundering Regulations 1993 and will publish money laundering rules which all authorised firms will be required to follow.

5. SFA is a subsidiary of the FSA. SFA is the regulatory organisation established under the Financial Services Act 1986 with responsibility for regulating members of the organised City investment markets, i.e. the stock market, eurobond, financial futures, commodity futures markets and also corporate finance specialists and off-market traders. Around 1,350 firms are regulated by the SFA.

6. The Government announced on 20 May 1997 that it would create a single regulator for all financial markets merging nine regulatory bodies including SFA. On 1 June 1998, the FSA began to supply regulatory services under contract to SFA and the other two Self Regulating Organisations (SROs). In addition, the staff of SFA, IMRO and PIA and the Supervision & Surveillance Division of the Bank of England took up their new posts as employees of the FSA. The SFA is replaced by the Financial Services Authority on 30 November 2001.