Threadneedle Asset Management was fined £6 million ($9.1 million) for failing to put in place adequate controls in the fixed-income side of its front-office operations, including the emerging markets debt desk, said a statement from the U.K.’s Financial Conduct Authority.
The FCA added that the fine also related to Threadneedle “providing inaccurate information to the regulator and for failing to correct the inaccurate representation for four months.”
The FCA’s predecessor, the Financial Services Authority, wrote to Threadneedle in 2011 asking it to address specific concerns about the fixed-income area of its front office. It was concerned about a number of errors occurring in the area, as well as the risks of portfolio managers initiating, booking and executing their own trades.
The firm responded to the FSA in June 2011, stating it had appointed individuals to be responsible for all aspects of dealing on the relevant desks. “This overstated the position,” the FCA statement said. “In fact, the individuals had not taken on all the responsibilities outlined in (Threadneedle’s) response and consequently, the FSA’s concerns had not been fully addressed.”
The statement added that, shortly after this response, a portfolio manager on the emerging markets debt desk initiated, executed and booked a $150 million trade on behalf of Threadneedle Asset Management strategies at four times its market value. “The fund manager did not have the authority to make the trade. (Threadneedle’s) outsourced back office identified the problem and did not settle the trade,” the statement said.
The FCA said the failings were particularly serious because the trade “could have caused a $110 million loss to the relevant client funds.”
In a separate statement, Threadneedle said it was the “intended victim of an attempted fraudulent trade involving collusion between a Threadneedle employee, an external broker and an FSA regulated entity” in August 2011. Threadneedle said it identified and stopped the trade, reporting it to the FSA. “There was no loss to Threadneedle or any client … the employee concerned was dismissed.”
The firm’s subsequent review of the systems and processes of its fixed-income front-office trading area, identified areas for improvement and “has since implemented a comprehensive upgrade,” the statement said. It added that the FCA confirmed “appropriate measures had been put in place to address the weakness that had been identified.”
Regarding the FCA’s note that the firm did not accurately describe the trading processes in place on the emerging markets debt 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 apologized to the regulator for this.” That failing related to £2 million of the total fine.
Threadneedle was combined with fellow Ameriprise Financial subsidiary Columbia Management this year and rebranded as Columbia Threadneedle Investments, with £311 billion in assets under management.
