The group has also paid £132m in compensation to eight funds managed on behalf of other companies within the Aviva Group that may have been adversely impacted by the firm’s poor control environment.
In May 2013, Aviva Investors found evidence of delayed booking and improper allocation of trades by two former fixed income traders between August 2005 and November 2012. The firm alerted the FCA and cooperated fully with the investigation. It also chose to settle the dispute at an early stage, which meant it qualified for a 30% discount on the fine imposed as per the FCA’s executive settlement procedures.
The full FCA investigation revealed that between 20 August 2005 and 30 June 2013 Aviva Investors: “failed to control the conflicts inherent in the management of funds that paid differing levels of performance fees on the same desk within its fixed income business.”
The FCA said that the incentive structure in place created conflicts of interest whereby: “side-by-side traders had an incentive to favour funds paying higher performance fees. This incentive was higher on desks where hedge funds were managed alongside long-only funds that paid lower or no performance fees.”
This situation was exacerbated by a poor control environment, the FCA said, which meant that “fixed Income traders could delay recording the allocation of executed trades for several hours without being detected”.
As a result of this combination there was an “increased risk that these side-by-side traders would seek to increase incentive payments by allocating trades that benefited from favourable intraday price movements to some funds and allocating trades that did not to other funds.”
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said:“This case serves as an important reminder to firms of the importance of managing conflicts of interest effectively by implementing a robust control environment with effective systems to manage the risks. Not doing so risks customers’ interests being overlooked in favour of commercial or personal interests.
But, she added: “While Aviva Investors’ failings were serious, the FCA has recognised that its actions since reporting its failings were exceptional.”
The FCA said, while Aviva Investors failed to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and failed to manage conflicts of interest fairly, it did not believe the failings were either deliberate or reckless.
In the final notice, it said: “since February 2012 Aviva Investors has committed significant resources to investigating and addressing the weaknesses in its control environment making significant improvements, which include enhancing governance, strengthening its control framework and seeking to embed an appropriate culture under the leadership of a new management team;
In a statement issued after the notice, Euan Munro, Chief Executive Officer of Aviva Investors, said: “We fully accept the conclusions of this investigation. 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.
“We have a clear focus on simple and specific investment outcomes for clients and we are delivering strong levels of investment performance within a robust control environment.”
