UK watchdog fines SEI Investments £1m for failing to protect client money
Asset manager SEI Investments has been fined nearly £1m (€1.2m) for failing to protect client money properly.
The UK Financial Conduct Authority (FCA) said it fined the firm £900,200 for client money breaches that took place between November 2007 and October 2012.
SEI qualified for a 30% discount on the full £1.2m fine by agreeing to settle the matter at an early stage, the regulator said.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: “SEI has committed a serious breach by failing to comply with our client money rules for over five years.”
During the period, there were many occasions when the firm did not do its internal reconciliations, or make sure any shortfall or excess identified in its internal reconciliation of client money was paid into or withdrawn from the client bank account by the close of business, it said.
The asset manager also did not realise it was using a non-standard method of internal reconciliation, the regulator said.
“SEI therefore failed to ensure it maintained its records and accounts in a way that ensured their accuracy,” the FCA said.
If SEI had become insolvent, it said, its failings could have led to complications and delay in distribution, and placed client money at risk.
On average, there had been about £84.3m a day in SEI’s client money accounts during the period, it said.
The FCA said SEI Investments did not train staff that were responsible for client money.
Once, it said, an SEI employee with no CASS (FCA Client Asset Sourcebook) training had manually adjusted SEI’s client money requirement from the £14m calculated using the internal client money reconciliation to £932,000 – as he assumed the £14m shortfall was wrong because it was an unprecedented amount.
SEI acknowledged the fine, and said it regretted that the situation had arisen.
But it insisted none of its clients had suffered or lost money.
“All client money was fully segregated from SEI assets at all times, with appropriate trust protection,” SEI said.
The FCA’s observations centred on CASS training and a technical calculation methodology related to FCA client money requirements, it said.
“Despite using a client money calculation that had been certified annually since 2007 by SEI’s CASS auditors as compliant, in 2012, the FCA determined that the calculation varied from its standard methodology,” it said.
During the period in questions, neither SEI nor its external auditors had been aware of any reason why the calculation model used did not offer at least as much protection as the FCA standard calculation, it said.
However, the firm said it has since invested significantly in reviewing and improving its CASS arrangements.
Commenting on the case, Jim Muir, director of financial data management firm AutoRek, said the fine was a clear signal that protecting client money was an imperative for all financial institutions.
“As we enter 2014, we anticipate that the FCA will continue its client money crackdown and there will be even more severe penalties for breaches of financial controls,” he said.
Extra sanctions such as individual bans and firms being prevented from taking on new business seem certain to be imposed as well as fines, he said.
“Far too many firms have corruptible, unauditable and unsustainable manual reconciliations and calculations,” he said.