Release Date: 24th February 2015
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) fined Aviva Investors Global Services Limited £17,607,000 for failing to manage conflicts of interest fairly due to inadequate systems and controls. This led to a £132,000,000 compensation payment to ensure no adverse impact on the funds managed by Aviva Investors.
- Fined Entity: Aviva Investors Global Services Limited
- Reason for Fine: Inadequate systems and controls to manage conflicts of interest fairly, particularly in the Fixed Income area.
- Amount: £17,607,000
Details of Misconduct:
- Period: 20 August 2005 to 30 June 2013
- Strategy: Employed a side-by-side management strategy where funds paying differing performance fees were managed by the same desk.
- Conflict of Interest: Performance fees incentivized traders to favour certain funds, leading to potential abuse.
- Control Weakness: Traders could delay recording trades, allowing them to cherry-pick favourable trades for certain funds.
- Discovery: In May 2013, evidence showed improper trade allocation by two former traders.
- Compensation: £132,000,000 paid to eight impacted funds to ensure no adverse impact from the misconduct.
Key Takeaways for Other Firms:
- Robust Risk Management: Implement effective risk management systems to monitor and control conflicts of interest.
- Timely Trade Allocation: Ensure trades are recorded and allocated promptly to prevent manipulation.
- Three Lines of Defence: Operate an effective three lines of defence model, ensuring each line functions properly to mitigate risks.
- Compliance Oversight: Strengthen compliance oversight and address audit issues promptly.
- Open Cooperation: Work openly and cooperatively with regulators during investigations and commit to rectifying identified issues.
Aviva Investors has since improved its control environment, governance, and risk management, under new leadership. The company received a 30% discount on the fine for settling early, reducing the penalty from £25,152,900.
Conclusion:
This case underscores the importance of managing conflicts of interest effectively and maintaining robust systems and controls to protect the integrity of financial markets and ensure fair treatment of customers.
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