UBS was accused of ??serious failure? by the Commission de Surveillance du Secteur Financier (CSSF), Luxembourg??s financial regulator, over its custodianship of a $1.4bn fund that invested with Bernard Madoff.
The regulator ordered the bank to pay compensation, saying the ??poor execution of its due-diligence obligations constitute a serious failure of its surveillance role as a depositary bank.? CSSF gave the UBS's local arm three months to pay compensation for its failures and improve procedures and structures.
UBS rejected the claims, saying it was ??unfair? to blame the bank. An official said: ??The investors in Luxalpha were sophisticated and explicitly agreed that the safekeeping of the securities was Madoff??s responsibility and not UBS's.?
UBS said that the Luxalpha fund was set up in 2004 at the request of a group of investors who already had money with Mr Madoff and wanted to hold their investments through a Luxembourg fund. Investors in the fund were required to sign a subscription form that said ??the risk of loss of the assets following a default of the US registered broker-dealer is borne entirely by the shareholders.?
Luxembourg is currently trying to rebuff critics who say that lax regulation is at least partially to blame for the losses.
