FSA FINE for failing to manage a conflict of interest – The Financial Services Authority has fined Martin Currie Investment Management and Martin Currie £3.5m for failing to manage a conflict of interest between two of its clients.
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 US regulator the Securities and Exchanges Commission is also fining Martin Currie in the US $8.3m (£5.1m).
The firms’ misconduct breached the FSA principles of skill, care and diligence, management and control, and conflicts of interest, the watchdog said.
The FSA said the conflict of interest arose when Martin Currie caused one client to enter into an ill-advised transaction which rescued another client from serious liquidity concerns.
Both clients focused on making investments in the China market and were managed by Martin Currie from its Shanghai office.
In April 2009, Martin Currie caused the rescued client fund to invest around £15 million in an unlisted bond issued by an offshore Chinese 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 for the client, whose fund halved in value over the next two years.
While the investment was detrimental to that fund, it had significant advantages for the other client in question, which was facing serious liquidity concerns due in part to its exposure to illiquid investments in a single offshore Chinese entity, the FSA said.
The transaction gave rise to a clear conflict of interest between the two funds, the regulator stated, adding that many of the firm’s failings resulted from weaknesses in its systems and controls around unlisted investments.
In particular, the firms lacked adequate oversight of the fund managers advising both clients, the FSA said.
Tracey McDermott, acting director of enforcement and financial crime, said: ““This transaction gave rise to an obvious risk of a conflict which Martin Currie was slow to identify and then failed to manage adequately.
- “It is no excuse that some of Martin Currie’s failings resulted from the actions of individual fund managers.”
Martin Currie settled early with the FSA and received a 30 per cent discount on its fine. The FSA said it also took into account that Martin Currie brought the breaches to the FSA’s attention and has co-operated fully with the investigation.
Willie Watt, chief executive of Martin Currie said:
- “The issue relates to three unlisted investments that originated back in 2007 in a specialist part of our business. We compensated the affected client and returned all related fees earned.
- “Following our comprehensive review, significant improvements have been made to our business including reinforcements to our governance function, changes to our management team and closing the unit down.
- “It is good to reach the end of the regulatory process, and put this behind us allowing for the business to move forward.”
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