Release Date: 30th January 2014
To access the original FCA document, click here.
Summary
State Street UK has been fined £22.9 million by the Financial Conduct Authority (FCA) for substantial failings in its Transitions Management (TM) business, which involved overcharging clients by concealing additional mark-ups on transitions beyond the agreed fees. This issue affected large investment management firms and pension funds, which represent the savings and funds of retail investors.
From June 2010 to September 2011, State Street UK engaged in a deliberate strategy of adding significant undisclosed mark-ups to certain transactions, which led to six clients being overcharged a total of $20,169,603. This malpractice came to light only after a client noticed unagreed mark-ups and alerted the firm. Subsequently, the individuals responsible for this initially misled both the client and State Street UK’s compliance department by claiming these charges were errors and issued a substantial rebate under false pretences.
The FCA’s investigation concluded that State Street UK’s actions constituted a serious breach of trust as the company acted as a trusted advisor to its TM clients. These actions were in violation of three of the FCA’s Principles of Business: failing to treat customers fairly; failing to communicate with clients clearly, fairly, and without misleading; and failing to organise and control its affairs responsibly with adequate risk management systems. The overcharging contributed to over a quarter of its TM revenue, highlighting the scale of the malpractice.
Upon discovery of these failings, State Street UK took significant steps to address the misconduct. This included a comprehensive overhaul of the TM business controls and enhancement of governance, culture, and control functions across its UK operations. Due to its cooperation and early agreement to settle during the FCA’s investigation, State Street UK received a 30% discount on the potential fine, which would have otherwise been £32.7 million.
The key takeaways for other firms in the financial sector are clear: maintain rigorous oversight of business practices, ensure transparency in fee structures, and foster a company culture that prioritises customer interests over revenue generation. Firms must also have robust risk management systems and effective communication strategies that align with regulatory expectations to avoid similar punitive actions and to uphold the integrity of the UK financial system. This case serves as a reminder that the FCA remains vigilant and committed to enforcing strict compliance with its standards to protect consumer interests and market integrity.
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