U.K. regulator the Financial Conduct Authority (FCA) has fined SEI Investments (Europe) £900,200 for failings in relation to its protection of client money.
The fine, which relates to both the asset management and wealth management sides of the fund management business, is the result of a breach of the regulator’s Client Asset Sourcebook (CASS) rules, specifically dealing with internal reconciliations.
The rules say that firms are required to keep client money separate from the firm’s money in client bank accounts with trust status. Firms that undertake client transactions and hold client money should perform daily client money calculations to check that they are segregating the correct amount of client money so that in the event of the firm’s insolvency, client money is returned to clients as quickly and easily as possible.
The FCA says SEI had, between November 2007 and October 2012, failed on several occasions to perform its internal reconciliations, failed on several occasions to ensure that any shortfall or excess identified in its internal reconciliation of client money was paid into or withdrawn from the client bank account by close of business on the day of the internal reconciliation, and failed to appreciate that it was using a non-standard method of internal reconciliation. SEI therefore failed to ensure that it maintained its records and accounts in a way that ensured their accuracy.
Failings were found throughout SEI’s client money processes, indicating that SEI’s client money arrangements were inadequate, says the regulator. The FCA found that SEI failed to train employees with operational oversight and responsibility for client money. On one occasion, an SEI employee who had not received any CASS training manually adjusted SEI’s client money requirement from the £14 million calculated using the internal client money reconciliation to £932,000, on the basis of his assumption that the £14 million shortfall was of an unprecedented amount and was therefore inaccurate.
Had SEI become insolvent, these failings could have led to complications and delay in distribution and placed client money at risk, says the FCA, adding that the average daily balance of the client money accounts during the relevant period was approximately £84.3m.
While there was no loss of client money in this instance, the FCA says its rules are designed to be preventative. Had SEI suffered an insolvency event during this period, customers could have suffered loss due to SEI’s non-compliance with the Client Money Rules.
In agreeing an early statement, SEI had qualified for a 30% discount. Without the settlement discount, the fine would have been £1,286,000.
Tracey McDermott, director of enforcement and financial crime at the FCA, says: “SEI has committed a serious breach by failing to comply with our client money rules for over five years. 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.”
In a statement where it had referred to the matter as a historic and technical issue, SEI said all client money was fully segregated from SEI assets at all times, with appropriate trust protection. It said that 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. “During the relevant period, SEI and its external auditors were not aware of any reason why the calculation model used did not offer at least as much protection as the FCA standard calculation,” said the statement.
“SEI has since invested significantly in reviewing and enhancing, where appropriate, its CASS arrangements. In March 2013, SEI obtained approval of its CASS arrangements from external experts approved by the FCA. SEI has used this review to continue to thoroughly test all areas of CASS compliance and significant investment continues to be made in technology and training to ensure SEI is in the best possible position to fully adhere and adapt to the evolving regulatory framework.”
U.K. Regulator Fines SEI Investments for Client Money Breaches
U.K. regulator the Financial Conduct Authority (FCA) has fined SEI Investments (Europe) £900,200 for failings in relation to its protection of client money.
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