Fund manager hit with £8.6m UK and US fines for conflict of interest
Friday 11 May 2012
Martin Currie, the Edinburgh-based fund management giant, has been hit with a £3.5m fine by the Financial Services Authority (FSA) for conflict of interest over a series of bond investments.
This is the largest fine ever imposed by the FSA in a conflict of interest case.
In addition to the fine issued by the FSA, the Securities and Exchanges Commission (SEC) is also fining Martin Currie £5.1m ($8.3m) in the US.
An investment in three unlisted bonds by its specialist China business in 2009 was judged to have represented a serious conflict of interests between different client accounts at the firm.
The FSA said Martin Currie failed to ensure that the bond's valuation or the rationale behind the investment were properly scrutinised at the time of the transaction, and it proved to be a poor investment, halving in value over the next two years.
Martin Currie undertook the transactions to correct liquidity problems, which if they had gone on would have damaged the firm's reputation. Nevertheless, since the transactions were brought to the attention of the FSA by Martin Currie's own management the firm has seen assets under management slip from £11bn to just £5bn.
The firm's chief executive, Willie Watt, has arranged for all losses relating to the transactions to be underwritten. But such action has only partially assuaged the anger of regulators on both sides of the Atlantic.
"This transaction gave rise to an obvious risk of a conflict which Martin Currie was slow to identify and then failed to manage adequately," said Tracey McDermott, the FSA's acting director of enforcement and financial crime. "It is no excuse that some of Martin Currie's failings resulted from the actions of individual fund managers.
"The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm, and senior management must ensure that there are adequate systems and controls in place to manage conflicts and to oversee the actions of employees.
"The action taken by both ourselves and the SEC should leave firms in no doubt about the serious consequences of this type of failure," Ms McDermott added.
Martin Currie settled early with the FSA and received a 30 per cent discount on its fine. Without the settlement discount it would have been £5m.
In a note to investors, Mr Watts said that the incident "exposed certain weaknesses in Martin Currie's systems and controls," but added: "We do not expect any further sanctions or remedial actions as a result of the issues covered by the settlements.
"These settlements do not impact adversely on our ability to continue to manage our clients' assets or our business around the world."
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