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FCA fines Aberdeen £7.2m over client money failings

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The Financial Conduct Authority has fined Aberdeen Asset Managers and Aberdeen Fund Management £7.2m over failing to protect client money.

The failings relate to money held in money market deposits. Clients can hold funds in money market deposits where they have large cash balances in their investment portfolios, in order to generate a return over a fixed period.

The regulator says Aberdeen failed to identify that client money placed in money market deposits with third party banks between September 2008 and August 2011 was subject to client money rules.

The average daily balance affected by this failure was £685m.

Aberdeen did not obtain the correct documentation from third party banks when setting up the affected accounts, and used inconsistent naming conventions when setting up the funds, creating uncertainty over fund ownership.

The FCA says Aberdeen’s failures meant clients were at risk of delays in having their money returned if Aberdeen became insolvent.

Aberdeen had been asked by the FSA to ensure the firm had the correct documentation, following a review in May 2009. Aberdeen wrote to the FSA in 2010 saying it was fully compliant with the rules.

FCA director of enforcement and financial crime Tracey McDermott says: “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.”

In a statement, Aberdeen says: ”Aberdeen confirms it has today agreed to a fine of £7.2m from the FCA in full and final settlement of past inadvertent breaches of UK client money rules which Aberdeen identified and reported to the regulator.

”No clients suffered any loss as a result of the breaches and at no point were client funds mixed with the Aberdeen’s own money. We regret that the situation arose, have co-operated fully with the FCA in the course of its investigation and have amended our UK procedures regarding bank deposits following the FCA’s guidance.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Is this fine for a technical breach or was there a real, material risk of client money being exposed to a Lehman situation?

  2. That’s the FCA Christmas Party fully funded.

    Sounds like a technical breach to me with no clients actually disadvantaged. Maybe the regulator should work with providers to improve systems rather than always having their fingers in their pockets.

  3. No Soren

    You forget, the fines money now goes to the Government to fund our armed forces. That’s the guy with the catapult (as a result of the cuts). Remember they need the money as they may possibly get involved in Syria., or whatever. As you know Cameron wants to play the big shot on the world stage and that costs money. Seems like we are called on to pay for everything nowadays.

  4. Reminds me of my school days. I get something wrong and the teacher canes me to ensure that I don’t make the same mistake again.

    Why? Because they can!

  5. It’s about time the institutions took a stance against the regulator in a similar fashion to the way the supermarkets handled their FSA over the horse meat saga.

    Unfortunately I don’t think it’s going to happen.

  6. You’re right Harry. Quite what the connection is between FCA fines and the army is anyones guess. Maybe the FCA is planning to use the army to enforce it’s silly rules. It would be the natural conclusion to the police state they have created.

  7. “many a true word is spoken in jest”
    And there is plenty of jest in the comments so far !

    What really gets me is ? consumer confidence (don’t forget this is what the FSA/FCA are wanting build) is being pushed so far down the rabbit hole will it ever be retrieved ?

    Every statement from the regulator is so negative, every rule is so unworkable, I think most of us just wait for the knock on the door and prepare to open our very thin wallets.

  8. Failing to correctly identify client money and put it in trust puts client money at risk if the firm goes bust. If Aberdeen went into liquidation there was a real risk of delay in payment of client monies to their rightful owners. This happened with Lehmans and is why the regulator is so hot on this topic.

    When it comes to client money the FCA work to the ‘Armageddon’ standard which is understandable when you consider the fall out from the financial crisis and what were thought to be solid organisations.

  9. This represents a huge escalation in the regulators enforcement of its rules. I’m a compliance professional (no jokes please!) and cannot understand how on earth the FSA have deemed this worthy of such a substantial penalty. If, as Aberdeen as suggesting, the client funds were never at risk by being mingled in with the companies own assets then they should have been given the opportunity to put things right, which they subsequently did. The regulator stresses that firms should always look at client outcomes. Was there a serious risk of a poor client outcome here? It doesn’t seem so to me.

    Yes, technically there’s a breach but is it in the public interest for this firm to be given such a hefty fine? I don’t see how.

    They’re making a rod for their own back. Unfortunately it’s the rest of us that will have to wear it!

  10. Hardly an escalation. There have been over £50 million in fines for CASS breaches in the last 3 years or so.

    It represents just over 1% of the balance exposed and is a typical fine for a CASS breach of this magnitude. You only need to look at JP Morgan and others for a comparison.

    Given the number of fines and communications around CASS the FCA are sending a clear signal that there can be no excuse.

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