Aviva Investors Global Services, the asset management unit of insurance firm Aviva, has been slapped with a penalty of £17.6m by the Financial Conduct Authority (FCA) for systems and controls failures spanning from 20 August 2005 to 30 June 2013.
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The firm has also paid £132m in compensation to ensure that the funds managed by the firm were not affected adversely.
On certain desks within the fixed income area, the firm used a side-by-side management strategy where funds paying varied performance fee levels were managed by the same desk.
This led to conflicts of interest as these traders were incentivised to favour one fund over another. Desks with funds trading in the same instruments were more open to risk.
Delaying the allocation of trades led traders, who managed funds on a side-by-side basis, evaluate a trade’s performance during the course of the day and after it was recorded allocate trades that benefitted from favourable intraday price movements to one fund and did not to other funds.
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By GlobalDataAviva Investors identified the glitch but according to FCA the firm’s risk management framework and the systems and controls operating in the fixed income area were not robust.
The regulator however, has pointed out that the company has cooperated with the regulator from an early stage of the probe which made it eligible for a 30% discount under the FCA’s executive settlement procedure.
FCA acting director of enforcement and market oversight Georgina Philippou said: "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.
"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."
