UBS France confirmed it was under investigation in a statement, saying it disputed the allegations and was awaiting the outcome of the matter "with serenity".
UBS France is suspected of trying to silence a whistle-blower who was behind revelations of alleged tax fraud by the bank, the source said.
The French subsidiary was also designated an "assisted witness" on a charge of moral harassment, a status between a full witness and being put under formal investigation.
Wednesday's action came less than two weeks after the end of the formal investigation stage in a French probe into the Swiss parent bank for money-laundering and tax fraud, and for complicity at UBS France.
UBS is alleged to have set up between 2004 and 2012 a system to incite rich French clients to open bank accounts in Switzerland to avoid paying tax in their home country.
On Friday Belgium charged UBS with "serious and organised" fiscal fraud for encouraging clients to cheat on their taxes, as well as being involved in money laundering.
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