OCIF ends probe of UBS Bank USA’s Puerto Rico dealings

Written by  //  December 23, 2013  //  Banking, Financial District  //  No comments

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Puerto Rico Financial Institutions Commissioner Rafael Blanco

Puerto Rico Financial Institutions Commissioner Rafael Blanco

The Office of the Financial Institutions Commissioner announced it has entered into an agreement with Utah-based UBS Bank USA through which the latter will transfer a securities-backed loan portfolio worth $562 million to UBS Financial Services Inc. of Puerto Rico.

The agreement signed Dec. 21 ends a probe that began when the government regulator, known as OCIF by its initials in Spanish, learned the stateside entity was doing unauthorized business on the island, a matter that surfaced after the fallout of UBS mutual funds sold to customers in Puerto Rico.

The so-called “non-purpose loans” were taken out by UBS Financial Services Inc.’s Puerto Rico customers and were guaranteed by the values in their respective accounts. These loans are called “non-purpose” because they can not be used to purchase additional securities, OCIF Commissioner Rafael Blanco said in a statement issued Sunday.

The Utah-licensed bank had offered the loans to Puerto Rico customers since 2003. Following the investigation, UBS Bank USA agreed to transfer the portfolio to the Puerto Rico brokerage division, while admitting no wrongdoing, the OCIF said.

From the bank’s point of view, the transaction will allow the local brokerage firm to continue issuing these types of loans to its clients who need liquidity without having to sell their securities. In addition, UBS Bank USA agreed to not grant such loans to residents of Puerto Rico again.

“From the OCIF’s perspective, the agreement safeguards the interest of investors and recognizes that these loans are secured, among other things, by securities [shares in closed-end funds] that can only be sold, assigned and owned by residents of Puerto Rico,” Blanco said.

By doing business in Puerto Rico without a license or approval from the OCIF and other local regulatory agencies, UBS Bank USA was not subject to paying fees and taxes applicable to the local banking sector, which put it at an advantage of sorts.

Blanco said the agency he heads will continue its investigation into other aspects related to UBS Financial Services Inc. and UBS Financial Services Inc. Puerto Rico.

“Given that it is the subject of a separate investigation, at this time the OCIF can not make additional comments on it,” Blanco said.

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