The FCA has fined State Street UK £22.9m for deliberately overcharging clients substantial mark-ups on changes to asset portfolios.
The regulator says the firm’s transitions management business developed and executed a deliberate strategy to charge clients mark-ups on certain transitions, in addition to the agreed management fee or commission. These mark-ups had not been agreed by the clients and were concealed from them.
TM is a service provided to clients to support structural changes to asset portfolios with the intention of managing risk and increasing returns.
State Street UK’s clients include large investment management firms and pension funds holding the funds and savings of retail investors.
Between June 2010 and September 2011 the FCA found that State Street UK’s TM business deliberately overcharged six clients a total of $20.2m (£12.3m), which accounted for over a quarter of TM’s revenue, in order to “meet its challenging revenue targets”.
FCA director of enforcement and financial crime Tracey McDermott says the firm acted “with complete disregard for the interests of its customers”.
She says: “State Street UK allowed a culture to develop in the UK TM business which prioritised revenue generation over the interests of its customers.
“State Street UK’s significant failings in culture and controls allowed deliberate overcharging to take place and to continue undetected.”
According to reports at the time, State Street dismissed two executives in 2011 in relation to transition fee overcharging.
One of the executives, Edward Pennings, took the firm to an employment tribunal, claiming he had been made a scapegoat to protect State Street’s reputation, but his claim was thrown out in December 2012.
Philip J Milton & Company managing director Philip Milton says: “It is surprising to hear of such unethical practices at a firm like this. Its reputation is likely to suffer substantially.”