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FCA fines Aviva Investors £17.6m over conflicts of interest failings

The FCA has fined Aviva Investors Global Services £17.6m for systems and controls failings that meant it failed to manage conflicts of interest fairly.

The regulator says these weaknesses led to £132m in compensation being paid to ensure that none of the funds Aviva Investors managed was adversely impacted.

From 20 August 2005 to 30 June 2013, Aviva Investors employed a side-by-side management strategy on certain desks within its fixed income area where funds that paid differing levels of performance fees were managed by the same desk.

A proportion of these performance fees were paid to traders in Aviva Investors fixed income area who managed funds on a side-by-side basis.

The FCA says this type of incentive structure created conflicts of interest as these traders had an incentive to favour one fund over another.

It found significant weaknesses in Aviva Investors’ risk management framework and the systems and controls that operated in the fixed income area.

The regulator says weaknesses in systems and processes meant traders could delay recording the allocation of executed trades for several hours.

This means traders who managed funds on a side-by-side basis could allocate trades that benefitted from favourable intraday price movements to one fund and trades that did not to other funds. This is an abusive practice commonly known as cherry picking.

In May 2013, Aviva Investors found evidence to suggest that two former fixed income traders had been delaying the booking of, and improperly allocating, trades.

Aviva Investors sought to ensure that none of the funds it managed were adversely impacted by this conduct and compensation of £132m was paid to eight impacted funds.

FCA acting director of enforcement and market oversight at the FCA Georgina Philippou says: “Ensuring that conflicts of interest are properly managed is central to the relationship of trust that must exist between asset managers and their customers. It is also a fundamental regulatory requirement.

“This case serves as an important reminder to firms of the importance of managing conflicts of interest effectively by implementing a robust control environment with effective systems to manage the risks. Not doing so risks customers’ interests being overlooked in favour of commercial or personal interests.”

She says Aviva Investors’ failings were “serious”, but the firm qualified for a substantial reduction in the fine due to its co-operation during the investigation and commitment to ensuring no customers were adversely impacted. 

Aviva Investors chief executive Euan Munro says: “We fully accept the conclusions of this investigation. We have fixed the issues, improved our systems and controls, and ensured no customers have been disadvantaged. We have also made substantial changes to the management team which is leading the turnaround of Aviva Investors.

“We have a clear focus on simple and specific investment outcomes for clients and we are delivering strong levels of investment performance within a robust control environment.”

Aviva Investors chief investment officer Shahid Ikram left the firm in February 2014 following a business review.

In December Aviva Investors hired Mark Connolly, formerly of Swip, as its fixed income chief investment officer.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. so Aviva investors have been compensated. Presumably at their own cost since Aviva’s money comes from management charges, but in addition they have been stung again by the FCA fine which comes from Aviva’s money which come from Aviva’s clients

    what a strange world – or is there something missing in my logic

  2. At least Aviva was held accountable and paid the fine – otherwise there could have been an industry-wide review with advisers reviewing all their advice on Aviva funds, and paying compensation themselves or through the good offices of their PI insurers …

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