HONG KONG • UBS Group said it could be fined and suspended from arranging Hong Kong initial public offerings (IPOs) as the city's securities regulator moves to punish the Swiss bank for its work on some IPOs.
The Securities and Futures Commission (SFC) has told UBS that it will take action against the bank and some employees, the Zurich firm said in its quarterly earnings report released last Friday.
That could result in "financial ramifications" for UBS, including fines and restitution orders, it said.
Hong Kong, the second-biggest IPO market this year with US$21.4 billion (S$29.8 billion) of listings, has been tightening oversight of banks that underwrite initial share sales after some deals saddled investors with losses in recent years.
UBS, which was the top IPO underwriter in the city as recently as in 2012, slipped to 20th this year, data compiled by Bloomberg shows.
The SFC introduced a system in 2013 where banks that sign off on listings, known as sponsors, will be held accountable if the offer documents contain untrue statements. It has also warned that bankers can be held criminally liable.
In 2012, the SFC said a stricter regime, with unambiguous criminal and civil liability, was needed to protect investors after a string of accounting scandals involving publicly traded Chinese companies.
The regulator wanted to "incentivise sponsors to raise standards, pick the right deals and manage them well, which should in turn reduce risks for investors and all those involved in IPOs", SFC chief executive oficer Ashley Alder said in December that year.
SFC spokesman Ernest Kong confirmed the probe. Spokesmen for USB and bourse operator Hong Kong Exchanges & Clearing, declined to comment.
UBS and other Western bulge- bracket firms have lost business as Chinese investment banks increasingly dominate the Hong Kong equity market. Its five top-ranked IPO underwriters this year are all Chinese firms, according to Bloomberg-compiled data.
One deal that was contentious was Tianhe Chemicals Group's 2014 share sale, sponsored by UBS and Bank of America.
Tianhe, whose stock has been suspended from trading for over a year, denied fraud allegations in 2014 from stock research firm Anonymous Analytics.