State Street UK has been fined £22.9m by the Financial Conduct Authority (FCA) for charging substantial concealed charges to transition management (TM) clients.
The FCA said today in a statement State Street UK had developed and executed a deliberate strategy to conceal these “mark-ups” from its clients, which included large investment management firms and pension funds holding the funds and savings of retail investors.
The regulator found between June 2010 and September 2011 that State Street UK’s TM business deliberately overcharged six clients a total of $20,169,603.
FCA director of enforcement and financial crime Tracey McDermott said: “The findings we publish today are another example of a firm that has acted with complete disregard for the interests of its customers. State Street UK allowed a culture to develop in the UK TM business which prioritised revenue generation over the interests of its customers.
“State Street UK’s significant failings in culture and controls allowed deliberate overcharging to take place and to continue undetected. Their conduct has fallen far short of our expectations. Firms should be in no doubt that the spotlight will remain on wholesale conduct.”
The FCA said the systemic weaknesses in State Street UK’s business practices and control environment around the UK TM business were so serious that the overcharging only came to light after a client notified staff that it had identified mark-ups on certain trades that had not been agreed.
Those responsible then incorrectly claimed both to the client and later to State Street UK’s compliance department that the charging was an inadvertent error, and arranged for a substantial rebate to be paid on that false basis. They deliberately failed to disclose the existence of further mark-ups on other trades conducted as part of the same transition.
The FCA said State Street UK had agreed to settle at an early stage of its investigation and has therefore qualified for a 30% discount. Were it not for this discount, the FCA would have imposed a financial penalty of £32.7m.
State Street said in a statement: “Today brings to a conclusion the FCA’s inquiry into the overcharging of six EMEA-based transition management clients in 2010 and 2011 that we self-reported in 2011. We deeply regret this matter. Over the past several years, we have worked hard to enhance our controls to address this unacceptable situation. The FCA in its notice is critical of our business controls within the UK transition management business and our control functions in the UK at that time. We acknowledge these as historical problems and have undertaken extensive efforts to address both, including strengthening the controls, procedures and governance within our UK transition management business.”
It added: “We are confident that we have addressed the weaknesses highlighted in the FCA’s notice and as a result, have emerged as a stronger organisation.”
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