Two out as Aberdeen fined over client rules

ABERDEEN Asset Management has parted company with at least two staff following a mix-up over client funds that led to the firm being fined £7.2 million by the City regulator.

Martin Gilberts Aberdeen Asset Managements fine was cut by 30% from £10.3m. Picture: Neil Hanna

A source told The Scotsman that “the people responsible have left the company”, though it is not known whether they were based in Scotland or at one of its other offices in London and overseas.

The firm, one of Europe’s biggest asset managers, admitted it had failed to segregate clients’ funds from its own between September 2008 and August 2011. The average daily balance affected by the breach of Financial Conduct Authority (FCA) rules was £685m.

Money was placed on deposit with third-party banks to get a better return but it was booked incorrectly as Aberdeen’s money rather than that of the clients. It is thought the dealers taking the orders were aware of the distinction.

It is understood that no more than a hundred clients were affected, although none suffered any loss as a result of the error.

A source told The Scotsman: “The people responsible have left the company. They had to go.”

Regulators have been monitoring the practice since the collapse of Lehman Brothers bank in 2008 which highlighted the difficulties customers can face in getting their money back if it is not kept separate.

Under FCA rules, institutions are required to ringfence client money so that, if a firm fails, money can be returned as soon as possible.

“Proper handling of client money is essential in ensuring that markets function effectively,” said Tracey McDermott, director of enforcement at the FCA.

“Where they fall short of our standards, firms should expect the FCA to step in and take action to avoid a poor outcome for their clients, and ultimately, consumers.”

The company, which had £170 billion under management in 2011 and now manages £200bn, said it regrets what happened, but no client suffered from the breaches. Chief executive Martin Gilbert declined to comment but the company emphasised in a statement that at no point were clients’ funds mixed with its own.

“Nor was there any risk of any client money being lost… although there was a risk that clients could have potentially faced a delay in the return of their money in the highly unlikely event that the company became insolvent.”

The FCA said: “Aberdeen incorrectly determined that this money was not subject to FCA rules, which meant that they did not obtain the correct documentation from third party banks when setting up the affected accounts.”

Following Lehman, regulators asked all asset managers in 2009 to make checks on customer money rules and Aberdeen had told the regulator in 2010 it was fully compliant, the FCA said.

The asset manager agreed to settle early, qualifying for a 30 per cent discount to avoid a £10.3m fine.

The fine is a full and final settlement of what Aberdeen admitted were “past inadvertent breaches of UK client money rules which Aberdeen identified and reported to the regulator”.