BRITISH and US regulators have fined asset manager Martin Currie a combined £8.6m ($13.9m) for failing to manage a conflict of interest between two of its clients.
The Financial Services Authority said it had fined the Scottish-based firm £3.5m, its largest fine ever imposed in a conflict of interest case. The Securities and Exchange Commission (SEC) dished out a £5.1m penalty.
Martin Currie, working out of its Shanghai office in April 2009, caused one US publicly traded fund client to invest around £15m in an unlisted bond issued by an offshore Chinese firm, which rescued a second hedge fund client that was facing serious liquidity difficulties, the FSA and the SEC said. That bond investment halved in value over the next two years, with Martin Currie failing to ensure the bond’s valuation or rationale were properly scrutinised at the time the client invested, the FSA said.
“This transaction gave rise to an obvious risk of a conflict which Martin Currie was slow to identify and then failed to manage adequately.
“It is no excuse that some of Martin Currie’s failings resulted from the actions of individual fund managers,” Tracey McDermott, acting director of enforcement and financial crime at the FSA, said in the statement.
The FSA said that Martin Currie received a 30 per cent discount on its fine after settling early.
Martin Currie said it had self-reported the case to the FSA, fully co-operated with the investigation and compensated the client for its losses.
The manager deemed responsible for the faults, Chris Ruffle, who is believed to have been born in Yorkshire, left Martin Currie in July, a source close to the matter said.
“Following our comprehensive review, significant improvements have been made to our business including reinforcements to our governance function, changes to our management team and closing the unit down,” Willie Watt, chief executive of Martin Currie, said.
News of the record fine coincides with a period of increased scrutiny of the investment management sector, as watchdogs vow to get tougher on fund firms that take undue risks with client cash.
Martin Currie manages money for a global client base of financial institutions, charities, foundations, endowments, pension funds, family offices, government agencies and investment funds.
It is an independent, privately-owned business, which was founded in 1881.