The Financial Conduct Authority has hit Aviva Investors with its second largest fine on record for a UK asset manager after finding the group’s traders manipulated deals to boost their fees at the expense of customers.
The watchdog on Tuesday issued the fund management arm of Aviva, the FTSE 100 insurance and investment group, with an £18m penalty for failing to prevent an “abusive practice” known as cherry-picking for as long as eight years.
The punishment comes as the UK’s £5tn asset management industry attracts increasing scrutiny from regulators. Just last week, the FCA warned the sector was not doing enough to guard against potential insider trading and market abuse.
It forms part of a campaign by the authority to ensure financial services professionals put the interests of their clients first. In issuing the penalty on Aviva, the FCA said that ensuring asset managers manage potential conflicts of interest effectively would “continue to be an area of focus” for the regulator.
The watchdog said the failings arose as the same trading desks at Aviva Investors, which manages almost £240bn worth of assets, handled multiple funds that charged varying levels of fees.
Traders were presiding over assets for external hedge funds — which Aviva charged fees of up to 20 per cent — as well as the company’s own life insurance policyholders, according to people familiar with the matter.
Instead of booking bond trades immediately to a particular fund, they would wait to see how the positions performed — and then allocate them to the funds depending on their performance fees.
For instance, the FCA said, a trader could buy a security in the morning intending to allocate it to a hedge fund, but six hours later, after seeing it fall in value, allocate it instead to another fund that charged low or no fees.
The practices would allow the traders involved to benefit financially, as they would receive a cut of the charges.
Regulatory consultants said they were surprised Aviva Investors had allowed such abuses to happen, saying they harked back to scandals in the 1990s.
“I thought that this sort of thing was a thing of the past,” said Mark Spiers, head of wealth management at Bovill. Laith Khalaf, senior analyst at Hargreaves Lansdown, added: “The failings were very serious indeed.”
Along with previously disclosed compensation payments to eight funds totalling £132m, the penalty takes the total bill for the episode to £150m.
The FCA said the way the systems were set up meant “there were clear conflicts of interest” that “led to an unacceptable risk that these weaknesses could be exploited for personal gain”.
total bill for the episode
Since the episode, Aviva’s chief executive Mark Wilson has said he is “100 per cent certain” it cannot happen again. The two traders responsible have left the business, the people familiar with the matter said.
The FCA said that since Aviva Investors discovered the failings it had behaved in an “exceptionally open and co-operative manner”. The company received a 30 per cent discount on the fine.
In a statement Euan Munro, who runs Aviva Investors, said: “We fully accept the conclusions of this investigation. We have fixed the issues, improved our systems and controls, and ensured no customers have been disadvantaged.
“We have also made substantial changes to the management team which is leading the turnround of Aviva Investors.”
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