Fidelity fined pounds 25,000 for breaking rules

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The Independent Online
Fidelity Investment, the Kent-based fund manager, has been fined pounds 25,000 and ordered to pay pounds 24,500 for breaking guidelines on investing clients' money in derivatives.

The offences, which took place between 28 January 28 and 4 October 1993, involved Fidelity's European Index and Reverse index funds which are worth a total of pounds 2m.

The fund manager, Trevor Robinson, broke rules laid down by the Investment Management Regulatory Organisation (Imro) on about ten occasions by investing in off-exchange futures contracts worth about pounds 40,000 each, said a spokesperson for Fidelity. These derivatives were deemed inappropriate investments for such funds because they are highly speculative and are difficult to trade, according to provisions of Part 5 of the financial Services (Regulated Schemes) Regulations. Investments in futures traded on exchanges such as Liffe were accepted.

Although the investment was little more than a technical breach of the rules and no clients lost any money, Imro insisted on a high fine, the third largest this year, because the incident revealed weaknesses in the fund manager's compliance procedures.

"We are always concerned about compliance procedures and, although there were no losses for clients, there could well have been," said a spokesperson for Imro.

Fidelity was also charged with failing to record the illicit investments in its breaches.

Fidelity argues that the breach was caused by an anomaly in the rules which has been amended to allow such transactions. "Breaches of the Rules should not occur," said Martin Cambridge, Fidelity's finance director, "but this was essentially a technical breach. Indeed the rules have now been revised to permit such transactions so the "breach" would not be one today."

Fidelity has more than pounds 3billion under management. Its trusts include the Fidelity Europe Value, managed by Antony Bolton, and Fidelity Japanese Value, managed by Simon Fraser.

Sensitivity about investment managers trading in derivatives has increased since rows centred on the losses incurred by advisors action on behalf of clients such as Metallgesellschaft, Proctor & Gamble, Gibsons, the greeting card company, and Orange County, California.

In march Fidelity announced that it would launch a new cash fund for investors anxious about the safety of their current cash depository since the collapse of Barings, The Fidelity Institutional Cash fund would seek an AAA credit rating.