The Financial Conduct Authority (FCA) has today fined Aviva £8,246,800 (US$10.4m) for failing to correctly monitor outsourced client assets on its wrap platform.
In a statement released by the UK regulator it found that Aviva Pension Trustees UK Limited and Aviva Wrap UK Limited had not adhered the FCA’s Client Assets Sourcebook (CASS) rules, that are there to protect client money and custody assets if a firm becomes insolvent and to ensure money and assets can be returned to clients as quickly as possible.
In serving its final notice today, the UK regulator said that while Aviva’s actions had not a resulted in a loss of client’s money, its rule are designed to be “preventative” and that had Aviva suffered insolvency there was to adequate protection in place due to the company’s no compliance with FCA CASS rules.
Mark Steward, director of enforcement and market oversight at the FCA said: “Aviva outsourced the administration of client money and external reconciliations in relation to custody assets, but failed to ensure that it had adequate controls and oversight arrangements to effectively control these outsourced activities.
“With outsourced arrangements firms remain fully responsible for compliance with our CASS rules. Firms are reminded that regulated activities can be delegated but not abdicated.”
‘Warning to other firms’
Steward said that Aviva’s fine should serve as a “warning to other firms” with similar outsourcing arrangements as there is “no excuse” for not having robust controls and oversight systems in place to ensure their processes comply with the financial watchdog’s rules when CASS functions are outsourced.
“This is the first CASS case in relation to oversight failures of outsourcing arrangements and we will continue to take action against firms that fall short of our CASS Rules,” said Steward.
Aviva breached the FCA’s CASS rules between 1 January 2013 and 2 September 2015.
During the period Aviva failed to put in place appropriate controls over third party administrators (TPAs) to which they had outsourced the administration of client money and external reconciliations in relation to custody assets.
This resulted in Aviva failing to sufficiently challenge the internal controls, competence and resources of their TPAs. Aviva also failed to dedicate adequate resource and technical expertise to enable them to implement effective CASS oversight arrangements resulting in their delayed detection and rectification of CASS risks and compliance issues, the FCA said.
The FCA said that it also found deficiencies with Aviva’s internal reconciliation process which resulted in the under- and over-segregation of client money. During the period from 10 February 2014 to 9 February 2015 under-segregation peaked at £74.4m.
The failings also meant that Aviva was unable to meet their obligations under the CASS Rules, such as the requirements to: submit accurate client money and asset returns (CMAR); and maintain an adequate CASS resolution pack.
Aviva agreed to settle at an early stage and in doing so it qualified for a 30% discount. Without the settlement discount, the fine would have been £11,781,262.
In March 2007 the FSA produced a Guide to Client Money for General Insurance Intermediariesto help firms understand how to hold client money in accordance with Chapter 5 of CASS.