UBS: Execution Premium Meets Selective Enforcement Controversy

Early in 2026,  emerged as a wealth management giant that managed over $7 trillion in invested assets after successfully navigating the most complicated integration in contemporary banking history: the acquisition of Credit Suisse. Additionally, we are aware that by February 2026, the bank had successfully transferred about 85% of the 1.1 million Swiss-booked client accounts to its own systems. Due to investors’ willingness to pay when management fulfills its integration commitments, this so-called “execution premium” is currently driving up quotes. Additionally, UBS’s financial results surprised us; for the entire year 2025, the bank reported a net profit attributable to shareholders of $7.8 billion, a 53% YoY increase.

The bank is successfully using its “One Bank” strategy, in which its Investment Bank gives Global Wealth Management (GWM) clients personalized solutions. This work across departments led to a 20% year-over-year increase in transaction-based income in the wealth arm during 4Q25. This was due to clients being interested in structured products and cash equities. This synergy lets UBS make a lot of money without spending a lot of money on capital. UBS is still a good investment, even though integration is a lot of work. The company suggested a dividend of $1.10 per share for the 2025 financial year, which is a 22% rise. In addition, after buying back $3 billion worth of shares in 2025, the board announced another $3 billion program for 2026, saying they wanted to “do more” as regulations become clearer.

However, I think that UBS lacks its peers in terms of the modern AML/KYC practices, still having manual KYC procedures in place, which can “take an average of 106 days for a medium-risk corporate client in some regions”, according to PWC’s study.

The industry is moving toward “Perpetual KYC” (pKYC), which replaces calendar-based reviews with event-driven, real-time monitoring. AI and machine learning are seen as the antidotes to the “human factor” in compliance. AI can reduce false positives by up to 30% and more than halve the time required for analysts to produce regulatory-ready narratives, and what’s more importantly, they help to mitigate selective enforcement risks and help banks avoid legal penalties and other issues like that. Did you know that penalties for these deficiencies reached staggering levels in 2024 and 2025, with banks like TD Bank facing $3 billion in fines for unmonitored transactions? There is a major risk for banks that lack new AI-driven technology in place that few investors think about.

Coming back to UBS, we see that the lack of high-quality algorithmic approach to compliance has led to accusations of “selective enforcement” from the Uzbek billionaire Alisher Usmanov. In 2024, The billionaire filed a lawsuit against UBS’s German unit after the bank filed several suspicious transaction reports that triggered a money-laundering investigation against Usmanov in Germany. And while the investigation was eventually dismissed, but I believe this case shows that the bank may have selective compliance practices in place.

There are a number of reasons why the Usmanov case is bad for UBS. First, it implies that the bank might be using the compliance process to reduce risk or respond to political pressure instead of following objective standards. Second, as some other authors have said, these kinds of reputation shocks can lead to a lot of clients leaving the ultra-high-net-worth (UHNW) group, who value privacy and consistency above all else. So, in effect, there could be some money leaving UHNW individuals and their family offices, which has historically been one of UBS’s main sources of income. Third, the harsh stance taken against Usmanov is very different from other legacy revelations. For instance, recent U.S. Department of Justice documents revealed that UBS opened accounts for Ghislaine Maxwell in 2014 , months after JPMorgan had exited its relationship with Jeffrey Epstein due to risk concerns , and continued to manage up to $19 million for her even after Epstein’s 2019 arrest.

UBS is putting money into AI by starting nine big projects to change the way it works. Sergio Ermotti, the CEO, says that 80% of the value of these projects will come from making back-end processes more efficient, not from tools that clients use. The goal of these projects over the next three years is to make the company more resilient and lower its cost-income ratio structurally so that it can reach its 67% goal by 2028. But we hardly ever hear about how the bank is making the KYC process more unified and streamlined, or about any improvements in compliance. And it’s a big problem for UBS, prospectively.

The Swiss government’s “Too Big To Fail” (TBTF) reforms are another risk for UBS. Swiss officials are thinking about rules that could make UBS keep a lot more money on hand to fully fund its foreign subsidiaries. The Swiss regulator FINMA has backed a plan that could make UBS keep up to $26 billion more in core capital. UBS management has strongly opposed these steps, saying they are “excessive” and “disproportionate.” If these rules were put into place, UBS would be a “pronounced outlier” compared to other companies around the world. The CET1 ratio that is actually required could go up to 21%, which is almost twice the global average. This “regulatory tax” would lower the bank’s return on equity in a structural way and make it harder for it to return capital through buybacks, making it difficult for the stock to re-rate to the multiples of its U.S. peers.

With the above risks UBS should currently be less expensive compared to its peers, but UBS is trading at 60%+ premium compared to its direct European peer, Deutsche Bank (NYSE: DB), in terms of forward price-to-earnings. DB trades at analyst noted recently, UBS trades at about 50% valuation premium relative to its direct peer group in Europe. This premium seems excessive to me.

In conclusion, I believe that for UBS investors, the next 12 months will depend on the outcome of the “Too Big To Fail” legislative process in Bern and the bank’s ability to update its compliance framework using AI to reduce “selective compliance” risks. It is wise to take a neutral position until we know if UBS can continue as a competitive global bank or if it will need to function as a capital-saving outlier. Stability is the new growth, but at 13 times earnings, that stability needs to be supported by a regulatory and legal framework that does not penalize the scale UBS has worked hard to build.