AVIVA Investors has been fined £17.6 million after its failure to manage conflicts of interest led to “cherry picking” by traders.
The Financial Conduct Authority (FCA) highlighted weaknesses in the company’s risk management as funds that paid differing levels of performance fees were managed by the same desk. This created a situation where traders had an incentive to favour one fund over another.
The firm has since paid £132m in compensation to ensure that none of the eight funds involved was adversely impacted.
The FCA found that weaknesses in systems and processes meant traders could delay recording the allocation of executed trades for several hours.
By delaying the allocation of trades, employees who managed funds on a side-by-side basis could assess a trade’s performance during the course of the day and allocate trades that benefited from favourable intraday price movements to one fund and trades that did not to other funds – an abusive practice known as cherry picking.
In May 2013, Aviva Investors found evidence to suggest that two former fixed income traders had been delaying the booking of, and improperly allocating, trades. The FCA said the fine of £17.6m would have been greater without the “exceptional” co-operation of Aviva’s management.
Georgina Philippou, acting director of enforcement and market oversight at the watchdog, said: “This case serves as an important reminder of the importance of managing conflicts of interest by implementing a robust control environment with systems to manage the risks.
Euan Munro, chief executive of Aviva Investors, said: “We have fixed the issues, improved our systems and controls, and ensured no customers have been disadvantaged. We have also made substantial changes to the management team which is leading the turnaround of Aviva Investors.”
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