Release Date: 2nd September 2013
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has imposed a fine of £7.2 million on Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited (collectively referred to as Aberdeen) for their failure to adequately protect client money. Between September 2008 and August 2011, Aberdeen did not correctly identify and therefore failed to protect client money placed in Money Market Deposits (MMDs) with third-party banks. This mismanagement affected an average daily balance of £685 million in MMDs.
The FCA’s client money rules are designed to ensure that client funds are clearly identified, protected, and promptly returned in the event of a firm’s insolvency. Aberdeen’s failure stemmed from their incorrect assumption that these funds were not subject to FCA rules, leading to inadequate documentation and inconsistent account naming conventions with third-party banks. This created a risk that client money might not be returned swiftly if Aberdeen became insolvent or if there was a legal right of set-off by the banks due to any debts owed.
This oversight was significant despite previous warnings and communications from the FCA’s predecessor, the Financial Services Authority (FSA), who had urged Aberdeen to comply with client money rules as early as May 2009. Aberdeen had even assured the FSA in 2010 of their full compliance.
Tracey McDermott, the director of enforcement and financial crime, emphasised that proper management of client money is crucial for the effective functioning of financial markets. Firms failing to meet these standards should expect regulatory intervention to prevent adverse outcomes for clients.
Aberdeen cooperated fully with the FCA’s investigation and agreed to an early settlement, which qualified them for a 30% discount on the fine. Without this discount, the fine would have been £10.275 million.
This case highlights the critical importance for financial firms to rigorously adhere to client money protection rules. It serves as a reminder of the regulatory focus on safeguarding client assets, a priority that has been intensified following the financial disruptions like the Lehman Brothers’ insolvency. The FCA continues to strengthen this area, as demonstrated by the recent consultation paper aimed at enhancing the client asset regime to ensure faster and more substantial recovery of client assets in case of a firm’s failure. Firms must ensure they have robust systems in place to handle client funds appropriately to avoid similar regulatory penalties and safeguard client interests.
