Release Date: 18th November 2019
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has fined Henderson Investment Funds Limited (HIFL) £1,867,900 for failing to treat more than 4,500 retail investors in its Henderson Japan Enhanced Equity Fund and Henderson North American Enhanced Equity Fund (the Japan and North American Funds) fairly. This breach relates to Principle 6 of the FCA’s Principles for Business.
In November 2011, Henderson Global Investors Limited (HGIL), the appointed investment manager, decided to reduce the active management of these funds. Institutional investors were informed of this change and offered management without charge. However, HGIL did not communicate this change to retail investors or amend the funds’ prospectus. As a result, for nearly five years, retail investors continued to pay the same fees for a diminished level of active management.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, stated, “The FCA requires firms to treat all its customers fairly, not just some customers. In this case, retail investors paid fees for active investment management they did not receive.” He further noted that the Japan and North American Funds effectively operated as “closet trackers” for retail clients, charging fees inappropriate for the level of management provided.
HIFL charged retail investors £1,784,465.32 more than if they had invested in a passive fund. The firm has since disclosed the matter to all affected customers and compensated them for the additional costs incurred. The FCA identified serious weaknesses in HIFL’s systems and controls regarding the management, oversight, and governance of the funds, contravening Principle 3 of the FCA’s Principles for Business. These weaknesses contributed to the delay in identifying and resolving the issue.
A total of 4,713 direct retail investors, 75 intermediary companies with underlying non-retail investors, and two institutional investors were affected by HGIL’s decision to not reduce their fees.
HIFL agreed to resolve the matter, qualifying for a 30% (stage 1) discount under the FCA’s executive settlement procedures. Without this discount, the fine would have been £2,668,547.40.
Key Takeaways for Other Firms:
- Fair Treatment of All Customers: Ensure that all customers, including retail investors, are treated fairly and equally informed about changes affecting their investments.
- Transparent Communication: Maintain transparent communication with all investors, especially when changes in investment strategies occur.
- Adequate Systems and Controls: Implement robust systems and controls to monitor and govern business practices effectively.
- Timely Identification and Resolution: Promptly identify and resolve issues to prevent prolonged harm to investors.
In conclusion, the FCA’s fine against HIFL underscores the importance of fair treatment, transparent communication, and robust governance in managing investment funds. These measures are essential to maintain trust and integrity in the financial markets.
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