The Financial Conduct Authority (FCA) has fined Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited (Aberdeen) £7,192,500 for failing to identify, and therefore properly protect, client money placed in Money Market Deposits (MMDs) with third party banks between September 2008 and August 2011.
The average daily balance in MMDs affected by this failure was £685 million.
The FCA's client money rules are designed to ensure that if a firm fails, money held on behalf of its clients is clearly identified, protected and returned as soon as possible. Aberdeen incorrectly determined that this money was not subject to FCA rules, which meant that they did not obtain the correct documentation from third party banks when setting up the affected accounts. Aberdeen also used inconsistent naming conventions when setting up these accounts, which created uncertainty over who owned these funds.
To support the FCA's strategic objective of ensuring the relevant markets function well, the FCA seeks to protect and enhance the integrity of the financial system. The protection of client assets is a regulatory priority and the FCA will continue to focus on driving up standards through firm supervision and policy work.
Aberdeen breached the FCA's principles for businesses which require firms to protect client assets and organise and control their affairs effectively. This left Aberdeen’s clients at risk of delays in having their money returned if Aberdeen became insolvent. Had debts been owed by Aberdeen to the third party banks providing the MMDs client money could also have been at risk of set-off.
Aberdeen had been asked to ensure they obtained the correct documentation by the FCA’s predecessor, the Financial Services Authority (FSA), following a review in May 2009. Aberdeen wrote to the FSA in 2010 to confirm that they were fully compliant with the relevant rules.
Tracey McDermott, director of enforcement and financial crime said:
"Proper handling of client money is essential in ensuring that markets function effectively. Where they fall short of our standards, firms should expect the FCA to step in and take action to avoid a poor outcome for their clients, and ultimately, consumers."
Aberdeen fully cooperated with the FCA’s investigation and agreed to settle at an early stage, qualifying for a 30% discount to their fine. Without the discount the fine would have been £10,275,000.
Notes for editors
- Final Notice for Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited.
- Where clients have large cash balances in their investment portfolios, funds may be placed in MMDs, often for a fixed time period to generate an investment return.
- Following the insolvency of Lehman Brothers in 2008, the FSA wrote to compliance officers in March 2009 and chief executives in January 2010 highlighting concerns about the management of client money. Chief executives were asked to confirm that their firms fully complied with the rules.
- The FCA’s predecessor, the FSA, established a specialist Client Asset Unit in 2010. The Unit carries out specialist and intensive supervision of client assets, with the aim of ensuring that firms have robust systems in place to ensure the swift return of client assets in the event of firm insolvency.
- The FCA continues to focus on the protection of client assets it recently published a consultation paper CP 13/5 setting out proposals to strengthen the client asset regime. The proposals include measures to facilitate faster and greater return of client assets, reducing the impact on consumers and the market if a firm becomes insolvent. The consultation closes on 11 October 2013, and we expect to publish final rules in the first half of 2014.
- Because some of the issues occurred before the FCA’s new penalty regime was introduced in March 2010 the fine was calculated using a combination of the new and old approach. The application of the current penalty regime resulted in a significantly higher fine – further details are set out in section 6 of the final notice.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA, as well as how it is different to the PRA.