City watchdog fines Aviva Investors £17.6m over conflict of interest

The failings took place between 2005 and 2013

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The Independent Online

Aviva, one of Britain's largest insurance companies, has been fined £17.6m by the financial watchdog after two former employees in its fund management arm breached City rules.

The traders, who worked on Aviva Investors' fixed-income desk, were found to have engaged in "cherry picking", which in effect means they allocated client money to funds paying higher performance fees to boost their remuneration. The failings took place between 2005 and 2013 when Aviva Investors ran a "side-by-side management strategy" whereby funds paying different levels of performance fees were managed by the same desk. Georgina Philippou, the acting director of enforcement and market oversight at the Financial Conduct Authority, said: "Ensuring that conflicts of interest are properly managed is central to the relationship of trust that must exist between asset managers and their customers. Not doing so risks customers’ interests being overlooked in favour of commercial or personal interests."

The workers involved in the breach have since been left Aviva, which first disclosed the regulatory inquiry in December 2013 and has paid out £132m to compensate customers, taking the total redress to almost £150m. 

 

Euan Munro, the chief executive of Aviva Investors, said: "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."

Aviva was up 1p to 549p in late trade despite news of the fine.

The company is in the process of merging with rival Friends Life in an all-share deal valued at £5.6bn, which is expected to yield £225m in annual cost savings by the end of 2017 but cost 1,500 people their jobs. The merger is expected to be rubber-stamped by investors at a general meeting next month with the City supportive of Aviva’s chief executive Mark Wilson.  

Mr Philippou added: "While Aviva Investors’ failings were serious, the FCA has recognised that its actions since reporting its failings were exceptional. The level of co-operation during the investigation and commitment to ensuring no customers were adversely impacted meant it qualified for a substantial reduction in the penalty."

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