The Financial Conduct Authority (FCA) has fined Aviva Investors Global Services Limited (Aviva Investors) £17,607,000 (€24 million) for systems and controls failings that meant it failed to manage conflicts of interest fairly. These weaknesses led to compensation of £132 million (€180 million) being paid to ensure that none of the funds Aviva Investors managed was adversely impacted.
“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,” said Georgina Philippou, Acting Director of Enforcement and Market Oversight at the FCA.
“While Aviva Investors’ failings were serious, the FCA has recognised that its actions since reporting its failings were exceptional. The level of co-operation during the investigation and commitment to ensuring no customers were adversely impacted meant it qualified for a substantial reduction in the penalty.”
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 whereby 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. This type of incentive structure created conflicts of interest as these traders had an incentive to favour one fund over another. This risk was particularly acute on desks where funds traded in the same instruments.
Aviva Investors agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% (Stage 1) discount under the FCA’s executive settlement procedure. Were it not for this discount, the FCA would have imposed a financial penalty of £25.2 million (€34.2 million) on Aviva Investors.