The National Treasury Management Agencys (NTMA) allegations that State Street overcharged Irish taxpayers through transition management services were moved to a parliamentary committee last week. John Corrigan, the Irish agencys CIO told the Joint Committee on Finance, Public Expenditure and Reform Debate he was concerned with the quality of governance at State Street and was awaiting a report from the UK Financial Services Authority (FSA) to decide on the future basis of the relationship with the company.
The latest meeting follows Corrigans appearance before the public accounts committee (PAC) last November, where he alleged State Street had overcharged the National Pensions Reserve Fund (NPRF) 3.2 million on transition management services. The money has since been paid back.
The NTMA, which oversees the NPRF, no longer use State Street for transition management and went out to tender for a new panel of managers last November. However, the agency still uses State Streets investment division, State Street Global Advisors, to manage index funds for the NPRF. We have no issue with the indexed funds, which are managed in a separate business unit within State Street, but we would be concerned with the quality of governance within State Street and other issues. To date, we only have the company’s account on which to rely and before we make any decision on the future basis of the relationship, if any, with State Street, we would wish to see the report from the regulator in the United Kingdom.
The allegations of overcharging on transition management were first raised when Irelands Comptroller & Auditor General, the NTMAs external auditor, published a report in September 2012 on payment for transition management services in relation to an asset sale, which said the custodian bank had been overcharging above the previously agreed rate for services of 698,000.
On foot of the November hearing, said Corrigan, the NTMA wrote to the FSA with a transcript of the PAC hearing expressing its concern that the authority had not reported. The FSA replied said it was following the matter up as quickly as it could and would report on it, said Corrigan.
As regards our relationship with State Street, State Street has successfully managed money for us over the years on behalf of the pensions fund. An indexed portfolio, it matches the return on certain stock market indices. We have taken the view commercially that it makes sense, because we do not have an issue with the management of that, to wait until we see the FSA report. We have been made good on the face losses that were incurred on the State Street transactions. We have accepted that money, but not on the basis of full and final settlement. The matter is still open in terms of seeking further remedies. We feel that it makes sense commercially to leave matters, just for the moment.
Corrigan told the chairman the NTMA identified difficulties that existed with State Street and the Comptroller and Auditor General brought the matter to the attention of the PAC. The NTMA saw certain press reports which aroused suspicion and on foot of that, it became apparent that there were irregularities. There were certain staff in State Street who had been sacked, reportedly, and that set alarm bells off. We made inquiries, whilst reporting the matter to the Comptroller and Auditor General as our external auditor, as would be the right thing to do, said Corrigan.
State Street gave the following statement: As previously discussed, this relates to a transition management matter that we self-reported to the FSA in September 2011. In a limited number of instances, we charged commissions on transition management mandates that were not consistent with our contractual agreements.
“Our transition management business is predicated on fair and comprehensive disclosure to our clients. As a result of our own internal analysis, we have determined that certain employees failed to comply with the high standards of conduct, communication and transparency that we expect. Those individuals are no longer with the company.
“The actions of these former employees and their interaction with a limited number of clients do not reflect the high standards of conduct, communications and transparency that State Street expects. We took swift and appropriate disciplinary actions in response to this conduct.
“As a result of this process we have strengthened our transition management business and enhanced our controls.
(JDC)