Santander Asset Management UK Limited

FCA action

fine

1

in fines

£320k

most recent

December 2003

• Fined £320,000 on 9 December 2003

  Final Notice issued on 9 December 2003 on Abbey National Asset Managers Limited 1. THE PENALTY 1.1. On 9 December 2003, the FSA imposed a financial penalty on Abbey National Asset Managers Limited (ANAM) of £320,000 in respect of breaches of FSA Principle 2 and Rules 3.1.1 and 3.2.6 of the FSA's Senior Management Arrangements, Systems and Controls Sourcebook (SYSC). 2. REASONS FOR THE ACTION 2.1. ANAM did not have in place systems and controls appropriate to its business between December 2001 and June 2003. 2.2. ANAM did not act with due skill, care and diligence in addressing the concerns raised by its divisional compliance function in connection with the Risk Mitigation Programme (RMP) project which was initiated in July 2002 to ensure the effectiveness of systems and controls in ANAM and extended to other companies within Abbey National's life assurance and asset management businesses. While recognising the complex nature of the manual processes in place within ANAM, the divisional compliance function was critical of ANAM's failure to meet project deadlines and the poor quality of work undertaken for the RMP project. As a result, it took ANAM three months longer than planned to put its process and controls documentation in place. 2.3. ANAM did not act with sufficient urgency in addressing serious concerns about the systems and controls in place on the fund management desks which were raised in two compliance reports (relating to the Abbey National Smaller Companies Unit Trust and the Far Eastern desk) in late 2002. It took up to nine months to address these concerns fully. 2.4. Compliance monitoring resource available to Abbey National's Life Division (formerly referred to within Abbey National plc as the Life Division of Wealth Management and Long Term Savings division) (the Life Division), of which ANAM forms a part, was significantly below budgeted headcount from about March 2002 to June 2003. The resource available was insufficient to maintain adequate compliance oversight from November 2002 and may have contributed to control failings in ANAM. ANAM allowed a situation where compliance oversight was not being maintained to continue for eight months after concerns were first raised by divisional compliance. 2.5. ANAM did not have sufficient management information to allow it to identify, measure, manage and control risks of regulatory concern that affected ANAM between 1 December 2001 and June 2003. 2.6. ANAM has demonstrated failings that demand a significant penalty. These failings are viewed by the FSA as particularly serious in the light of the following factors: (1) that they involved a significant failing in senior management arrangements, systems and controls; (2) that ANAM did not assess the status of its systems and controls near or at N2 (December 2001) to satisfy itself that it complied with the FSA SYSC Rules requirements; (3) that ANAM failed to accelerate its RMP project review work once the serious concerns raised by the divisional compliance reports were highlighted and allowed those concerns to continue unremedied for up to nine months; (4) the cost of compensation to clients impacted by the trading activities of a senior fund manager totalled approximately £300,000; and (5) that the Life Division's compliance monitoring resource was insufficient to maintain adequate compliance oversight and may have contributed to control failings in ANAM. 2.7. In deciding the level of the financial penalty imposed, the FSA has recognised that ANAM: (1) informed the FSA of the activities of the senior fund manager; (2) implemented detailed and comprehensive systems and controls procedures in June 2003 as a result of the RMP project review; (3) provided compensation to client funds affected by the trading activities of the senior fund manager; and (4) by moving quickly to agree the facts of the case and to settle the matter, has helped the FSA to work expeditiously towards its regulatory objectives, which include protecting consumers. 3. FACTORS RELEVANT TO DETERMINING THE SANCTION 3.1. In determining that a financial penalty is appropriate and the amount imposed is proportionate to ANAM's breaches, the FSA considers the following factors to be particularly relevant. The seriousness of the misconduct or contravention 3.2. The level of financial penalty must be proportionate to the nature and seriousness of the contravention. The breaches arose because of a failure to ensure that appropriate systems and controls were in place. 3.3. The seriousness is magnified by the fact that ANAM did not act with due skill, care and diligence in addressing the concerns raised by Life Division Compliance with regard to the RMP Project. Nor did ANAM sufficiently recognise the seriousness of Life Division Compliance reports on two separate dealing desks. ANAM failed to address fully the concerns raised in those reports for up to nine months. The extent to which the contravention is deliberate or misconduct was deliberate or reckless 3.4. ANAM's contraventions were not deliberate or reckless. The amount of profit accrued or loss avoided 3.5. ANAM has identified clients adversely impacted by the trading activity on the Far Eastern desk and compensation has been paid. The firm reviewed the circumstances of the Abbey National Smaller Companies Unit Trust and concluded that no compensation was payable. Conduct following the contravention 3.6. ANAM investigated the specific matters of the Abbey National Smaller Companies Unit Trust and Far Eastern desk as soon as the issues came to its attention. 3.7. ANAM has acknowledged its control weaknesses and has acted effectively to remedy these weaknesses. Disciplinary record and compliance history 3.8. ANAM has not previously been the subject of disciplinary action. Action taken by other regulatory authorities and the FSA in relation to similar failings 3.9. In setting the level of the penalty, the FSA has taken into account penalties levied by previous regulators and the FSA. 4. CONCLUSION 4.1. Taking into account the seriousness of the breaches and the risk they posed to the FSA's statutory objectives, but also having regard to the effective remedial action taken by ANAM and the early settlement of the case, the FSA has decided to impose a financial penalty of £320,000.