Asset manager fined over failure to put in adequate fixed income controls

Money On Hook

The Financial Conduct Authority (FCA) has fined Threadneedle Asset Management Limited (TAML) £6,038,504 ($9.03m) for failing to put in place adequate controls in the fixed income area of its front office, and for providing inaccurate information to the regulator and for failing to correct the inaccurate representation for four months.

In April 2011, the Financial Services Authority (FSA) wrote to TAML and asked TAML to address specific concerns about the fixed income area of its front office, including the Emerging Markets Debt desk. The FSA was concerned about, among other things, the number of errors occurring in that area as well as the risks of fund managers initiating, booking and executing their own trades. On 29 June 2011, TAML responded to the FSA stating that it had appointed individuals to be responsible for all aspects of dealing on the relevant desks (including the Emerging Markets Debt desk) and that the individuals had taken on those responsibilities. This overstated the position. In fact, the individuals had not taken on all the responsibilities outlined in TAML’s response and consequently, the FSA’s concerns had not been fully addressed.

Shortly after TAML submitted its response, a fund manager on the Emerging Markets Debt desk initiated, executed and booked a $150m trade on behalf of TAML funds at four times its market value. The fund manager did not have the authority to make the trade. TAML’s outsourced back office identified the problem and did not settle the trade.

The FCA considers these failings to be particularly serious because the deficiencies allowed a fund manager to initiate, execute and book a $150m trade which, had it settled, could have caused a $110m loss to the relevant client funds.

TAML received a 20% Stage 2 settlement discount, without which the fine would have been £7,548,130 ($11.28m).

Source - The Financial Conduct Authority

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