The Financial Conduct Authority (FCA), the UK financial services regulator, has fined an asset and wealth management firm £900,200 ($1.5 mn) for failing to properly look after its clients’ investments.
The European arm of SEI Investments has been hit with a six-figure penalty for failing to keep the firm’s own money and its clients’ balances in separate, properly protected bank accounts.
The FCA reports that between November 2007 and October 2012 SEI failed to perform internal checks on bank accounts and did not make sure the right amount of money was kept in client accounts at the end of each business day. By using a ‘non-standard’ method of internal reconciliation, reads the FCA’s final notice, SEI failed to ensure records and accounts were maintained with suitable accuracy.
Current FCA rules dictate that firms must separate client and company funds and check daily to ensure the right amount of money is set aside so that, in the event of the firm’s insolvency, it can properly compensate its clients.
Tracey McDermott, director of enforcement and financial crime at the FCA, describes the transgression as ‘a serious breach’ of the FCA’s guidelines. ‘We have repeatedly emphasized the importance of ensuring that client money is adequately protected and we have taken a number of enforcement actions against firms of all sizes for breaches of our rules in recent years,’ she says.
SEI also apparently failed to train employees regarding taking proper responsibility for client money. On one occasion, an SEI employee manually adjusted the firm’s buffer for its clients’ funds from £14 mn to £932,000 after assuming the former level was unprecedentedly high and therefore inaccurate.
The FCA estimates the company held approximately £84.3 mn of clients’ money every day, on average. If SEI had become insolvent, the regulator warns, methods of repaying its clients could have been delayed or even made impossible.
‘Firms that hold client assets should ensure they continue to strengthen their management, oversight and controls in this area,’ McDermott adds. ‘We will continue to take action to ensure that procedures at firms meet our client asset requirements and action will be taken against firms that fall short.’
Though the FCA considers SEI’s shortcomings to be serious, no client money was actually lost. The sell-side firm also co-operated with the FCA, brought in external consultants and restructured its working model to prevent the problem from happening again.
For its efforts, and for agreeing to settle its fine early, the firm qualified for a 30 percent discount on its penalty, which would otherwise have totaled £1.29 mn.
