Martin Currie fined £8.6m

The company was found guilty of failing to manage a conflict of interest between two of its clients.

It wrongly advised a US mutual fund, the China Fund Inc, to invest £15m in a transaction that rescued a struggling Chinese hedge fund. Both funds were managed by Martin Currie’s Shanghai office.

The Washington-based Securities and Exchange Commission imposed a £5.1m penalty and the UK’s Financial Services Authority £3.5m, the largest fine ever imposed by the FSA in a conflict of interest case, first revealed in Scotland on Sunday in January last year. Martin Currie escaped a £5m fine from the FSA by agreeing to settle early.

The FSA accepted that Martin Currie brought the breaches to its attention and co-operated fully with the investigation, compensated clients of the US mutual fund for their losses, setting aside £12m in compensation.

In a statement, the FSA said that many of Martin Currie’s failings resulted from weaknesses in its systems and controls around unlisted investments which it no longer includes in its portfolio.

Tracey McDermott, acting director of enforcement and financial crime, said: “Effective identification and management of potential conflicts of interest between clients is a core requirement for asset managers.

“This transaction gave rise to an obvious risk of a conflict which Martin Currie was slow to identify and then failed to manage adequately. It is no excuse that some of Martin Currie’s failings resulted from the actions of individual fund managers. The primary responsibility for ensuring compliance with a firm’s regulatory obligations rests with the firm, and senior management must ensure that there are adequate systems and controls in place to manage conflicts and to oversee the actions of employees.

“The action taken by both ourselves and the SEC should leave firms in no doubt about the serious consequences of this type of failure.”

Robert Khuzami, director of the SEC’s division of enforcement, said: “The misconduct in this case strikes at the heart of the fiduciary relationship between an investment adviser and its client. Advisers must treat each client with undivided and disinterested loyalty, and must make full and fair disclosure of all material conflicts of interest.”

The manager deemed responsible for the faults, Chris Ruffle, left Martin Currie in July.

Willie Watt, chief executive of Martin Currie said: “The issue relates to three unlisted investments that originated back in 2007 in a specialist part of our business. We compensated the affected client and returned all related fees earned. Following our comprehensive review, significant improvements have been made to our business including reinforcements to our governance function, changes to our management team and closing the unit down. It is good to reach the end of the regulatory process, and put this behind us allowing for the business to move forward.

“The injection of fresh capital in the business means we are financially strong and demonstrates a clear vote of confidence by Martin Currie’s directors and the continued support of our external shareholders”.