The FCA has fined asset and wealth management services provider SEI Investments (Europe) £900,200 for failing to adequately protect client money.
The regulator says SEI committed “a serious breach” by failing to comply with its client money rules over a five-year period.
SEI agreed to settle at an early stage and in doing so qualified for a 30 per cent discount. Without the settlement discount, the fine would have been £1.3m.
The FCA says SEI failed to ensure that it maintained its records and accounts in a way that ensured their accuracy, and failed to train employees with operational oversight and responsibility for client money.
Under the FCA’s client money rules, firms are required to keep client money separate from the firm’s money in client bank accounts with trust status.
Firms that undertake client transactions and hold client money should perform daily client money calculations (referred to in the FCA Client Asset Sourcebook rules as internal reconciliations) to check that they are segregating the correct amount of client money so that in the event of the firm’s insolvency, client money is returned to clients as quickly and easily as possible.
Between November 2007 and October 2012, the provider failed on several occasions to perform its internal reconciliations, failed on several occasions to ensure that any shortfall or excess identified in its internal reconciliation of client money was paid into or withdrawn from the client bank account by close of business on the same day, and failed to appreciate that it was using a non-standard method of internal reconciliation.
On one occasion, an SEI employee who had not received any CASS training manually adjusted SEI’s client money requirement from the £14m calculated using the internal client money reconciliation to £932,000, on the basis that £14m was an unprecedented amount and was therefore inaccurate.
The regulator says while the firm’s failings were serious, no actual loss of client money occurred.
However, it says that had SEI suffered an insolvency event during the period, the failings could have led to complications and delay in distribution and placed client money at risk. The average daily balance of the client money accounts during the relevant period was approximately £84.3m.
FCA director of enforcement and financial crime Tracey McDermott says: “SEI has committed a serious breach by failing to comply with our client money rules for over five years.
”We have repeatedly emphasised the importance of ensuring that client money is adequately protected and we have taken a number of enforcement actions against firms of all sizes for breaches of our rules in recent years.
“Firms that hold client assets should ensure they continue to strengthen their management, oversight and controls in this area. We will continue to take action to ensure that procedures at firms meet our client asset requirements and action will be taken against firms that fall short.”
SEI has cooperated with the FCA during its investigation, invested in external consultants, and has restructured its operational model.
In a statement, SEI says all client money was fully segregated from its assets at all times, and there was no loss or detriment caused to its customers.
It says: “The FCA’s observations centred on CASS training and a technical calculation methodology in relation to FCA client money requirements. Despite using a client money calculation that had been certified annually since 2007 by SEI’s CASS auditors as compliant, in 2012 the FCA determined that the calculation varied from its standard methodology.”