On 3 September 2013, the Financial Conduct Authority (FCA) published a press release announcing the final notice it has issued to Aberdeen Asset Managers Limited and Aberdeen Fund Management Limited (“Aberdeen”), fining the firm £7,192,500 for breaches of the FCA’s client money rules. This fine included a 30% discount for early settlement by Aberdeen.
Over a three year period from 31 August 2008 to 31 August 2011, Aberdeen breached Principle 3 (management and control) and Principle 10 (protection of client assets) of the FCA’s Principles for Businesses. The firm failed to recognise that money held on behalf of clients in Money Market Deposits (MMDs) with third party banks were subject to the FCA’s client money requirements set out in Chapter 7 of the Client Assets Sourcebook (CASS). As a result, Aberdeen breached rules 7.3.1R, 7.3.2R, 7.6.1R, 7.6.2R and 7.8.1R in CASS.
Under the client money requirements, firms are required to protect money held on behalf of its clients in the event of firm failure. Aberdeen failed to:
Provide appropriate trust letter notifications to the banks and did not obtain acknowledgements confirming the client money trust status of the deposited monies from those banks;
Provide consistent account naming conventions when setting up accounts, creating uncertainty over ownership of those accounts.
The net result was that an average daily balance of approximately £685 million had been at risk but no actual loss of client money was suffered. However had the firm become insolvent, severe delays and complications in the distribution of client money would have resulted.
Aberdeen’s failings highlight the importance of identifying and protecting client money. In this regard, a CASS Resolution Pack (CASS RP) represents a useful and readily available compliance tool. In providing a convenient snap shot of the state of a firm’s CASS compliance, not only does it assist an Insolvency Practitioner in locating and returning client money, but it also highlights immediate and ongoing deficiencies in a firm’s CASS procedures. Implementing prompt remedial action with respect to CASS deficiencies highlighted during the creation and maintenance of a CASS RP will help avoid the high price, both in terms of monetary fines and reputational damage, that was experienced by Aberdeen in this case.