Aviva Investors was fined £17.6 million ($27.2 million) by the U.K.'s Financial Conduct Authority for violations related to the management of a number of portfolios within its fixed-income business.
In a notice published Tuesday, the FCA said it expects a money manager to ensure that it “takes reasonable care to organize and control its affairs responsibly and effectively with adequate risk management systems; and manages conflicts of interest fairly, both between itself and its customers and between customers and other clients.”
The FCA said between Aug. 20, 2005, and June 30, 2013, Aviva failed to control conflicts relating to the management of portfolios that incurred differing levels of performance fees on the same trading desk, within its fixed-income business. The FCA said the practice of having the same individuals managing portfolios with different strategies and investment structures is known as side-by-side management.
The U.K.'s financial watchdog said Aviva Investors' structure meant side-by-side traders had “an incentive to favor funds paying higher performance fees,” which it added was higher on desks where hedge funds were managed alongside long-only funds, which paid lower or no performance fees.
Further, the FCA said there was a “poor control environment,” since fixed-income traders were able to “delay recording the allocation of executed trades for several hours without being detected.”
It said two former fixed-income traders had taken advantage of these weaknesses. After Aviva discovered evidence of delayed booking and improper allocation of trades in May 2013, compensation was paid to eight portfolios that were identified as potentially being affected by the violations, totaling £132 million.
Aviva Investors also notified the FCA of the breaches and cooperated with the investigation. The early settlement earned the £240 billion money manager a 30% discount on the original fine.
Aviva Investors said in a statement Tuesday it “unreservedly accepts the FCA's decision and has agreed to pay” the fine.
“We have fixed the issues, improved our systems and controls, and ensured no customers have been disadvantaged,” said Euan Munro, CEO of Aviva, in the statement. “We have also made substantial changes to the management team which is leading the turnaround of Aviva Investors.”
A spokesman for Aviva did not disclose which portfolios were affected, beyond identifying that they were long-only funds, and that no clients had been disadvantaged by the violations. In further details provided by e-mail, Aviva Investors said it could not comment on specific clients but added that an “extensive and thorough investigation was undertaken by GIFA (group investigations and forensic audit), an independent investigative function within the wider Aviva Group,” followed by a remediation with clients.
