Between June 2010 and September 2011 the regulator found that State Street UK’s transitions management business deliberately overcharged six clients a total of $20.2m. The firm’s clients include large investment management firms and pension funds holding the funds and savings of retail investors.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “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.”
Transitions management (TM) is a service provided to clients to support structural changes to asset portfolios with the intention of managing risk and increasing returns. It may be required when a client needs a large portfolio of securities to be restructured, or when a client decides to remove or replace asset managers.
State Street UK was found to have breached three of the FCA’s Principles of Business: it failed to treat its customers fairly; it failed to communicate with clients in a way that was clear, fair and not misleading; and it failed to take reasonable care to organise and control its affairs responsibly, with adequate risk systems.
The firm has since implemented a comprehensive programme to improve the UK TM business controls and bolster control functions, governance and culture across its UK businesses. It also agreed to settle at an early stage of the FCA’s 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.
