The FCA has fined Threadneedle Asset Management over £6m for failing to put in place adequate controls in its fixed income business.
The regulator says the failings allowed a fund manager to initiate, execute and book a $150m trade which, had it settled, could have caused a $110m loss to the relevant client funds.
Threadneedle also failed to provide accurate information to the regulator and failed to correct this for four months.
In April 2011, the FSA wrote to the firm asking to address specific concerns about the fixed income area of its front office, including the emerging markets debt desk as it was concerned about “the number of errors” occurring in that area as well as the risks of fund managers initiating, booking and executing their own trades.
Threadneedle responded after two months but didn’t address the issues asked by the regulator.
Shortly after TAML submitted its response, a fund manager on the Emerging Markets Debt desk initiated, executed and booked an unauthorised $150m trade on behalf of the firm at four times its market value.
Threadneedle’s s outsourced back office identified the problem and did not settle the trade.
The firm says in August 2011 it had been “the intended victim of an attempted fraudulent trade involving collusion between a Threadneedle employee, an external broker and an FSA regulated entity”.
The group said in a statement that at the time of the trade it had identified and stopped the trade and reported it to the regulator. It said there was no loss to the firm or any of its clients and that the employee concerned in the operation was dismissed.
It also said that following the FCA letter it had implemented “a comprehensive upgrade” of its fixed income systems and controls as well as a skilled person’s review in July 2013.
Threadneedle says: “The FCA found that a report on the adequacy of Threadneedle’s front office operating controls submitted in June 2011 did not accurately describe the trading processes in place on the EMD and High Yield desks. It has always been Threadneedle’s intention to keep the regulator appropriately informed.
“We acknowledge that our response was not as full as it should have been and we have apologised to the regulator for this. Of the total penalty of £6,038,504 the amount relating to this failing is £1,992,000.”
The fund group received a 20 per cent settlement discount, and otherwise would have been fined £7,548,130.