Aberdeen fined £7.2m for failing to protect client money

Pointing The Finger

A fine ain't fine.

The Financial Conduct Authority (FCA) has fined Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited (Aberdeen) £7,192,500 for failing to identify, and therefore properly protect, client money placed in Money Market Deposits (MMDs) with third party banks between September 2008 and August 2011.

The average daily balance in MMDs affected by this failure was £685 million.

The FCA's client money rules are designed to ensure that if a firm fails, money held on behalf of its clients is clearly identified, protected and returned as soon as possible. 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. Aberdeen also used inconsistent naming conventions when setting up these accounts, which created uncertainty over who owned these funds.

To support the FCA's strategic objective of ensuring the relevant markets function well, the FCA seeks to protect and enhance the integrity of the financial system. The protection of client assets is a regulatory priority and the FCA will continue to focus on driving up standards through firm supervision and policy work.

Aberdeen breached the FCA's principles for businesses which require firms to protect client assets and organise and control their affairs effectively. This left Aberdeen’s clients at risk of delays in having their money returned if Aberdeen became insolvent. Had debts been owed by Aberdeen to the third party banks providing the MMDs client money could also have been at risk of set-off.

Aberdeen had been asked to ensure they obtained the correct documentation by the FCA’s predecessor, the Financial Services Authority (FSA), following a review in May 2009. Aberdeen wrote to the FSA in 2010 to confirm that they were fully compliant with the relevant rules.

Tracey McDermott, director of enforcement and financial crime said: 'Proper handling of client money is essential in ensuring that markets function effectively. 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'.

Aberdeen fully cooperated with the FCA’s investigation and agreed to settle at an early stage, qualifying for a 30% discount to their fine. Without the discount the fine would have been £10,275,000.

image: © Lisamarie Babik

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