CSA Partners: Compliance Blog

Regulator fines Aviva Investors £18m for control failures / Mait

24/02/2015.

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.

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