Regulatory News: FCA fines and prohibits Aviva Investment Analyst for TCF failings

The FCA has now fined Mr Mothahir Miah £139K, (reduced from £198,600) for a lack of fitness and propriety in repeatedly, and deliberately, failing to treat customers fairly in circumstances that saw him put his own interests before theirs.

Mr Miah worked for Aviva Investors Global Services for over a decade and during a period from 2010 to 2012, was working as an Investment Analyst, approved for holding Customer Function CF30 and being responsible for trading on behalf of Hedge Funds as well as on behalf of Long-only Funds. During this period, Mr Miah exploited weaknesses in Aviva’s systems and controls when booking and allocating his trading activity meaning that he was able to assess the profitability of trades throughout the day before picking and choosing which of his clients to allocate them to – a malpractice known as ‘Cherry Picking’. Invariably those that were more profitable were allocated to his Hedge Fund clients that paid commission fees and those less profitable were allocated to certain Long-Fund clients that paid lower or no commission.

Whilst Aviva had systems and controls in place for how soon after trading allocations must be booked, Mr Miah often and repeatedly over the period deliberately flouted these rules. Where internal procedures required him to book and allocate the details of trades and amounts on behalf of long-only funds within a timescale of 15 minutes, he often did so hours afterwards. Of his profitable trades allocated to Hedge Fund clients, 88% of these were made after the specified internal 1 hour deadline of which 68% were booked within a 3 to 9 hour window afterwards.

And in relation to his non-profitable booking allocations to Long-only Funds, 74% of these were booked after an 1 hour, with 83% booked between 3 to 10 hours afterwards – some feat considering the internal procedures specified the deadline was within 15 minutes of making the deal.

Approved Persons & TCF Misconduct & Failings

Following investigation, Mr Miah acknowledged that he knew cherry picking trades was wrong and that he was aware he was being dishonest and unfair to his customers. However, he continued to do so as a means of ‘proving’ his trading ability to his colleagues at Aviva.

Whilst Mr Miah’s actions are a clear breach of Statement 1 of the Approved Persons Code of Practice, whereby the Regulator expects that all Approved Persons will act with integrity at all times and not place their own interest before those of their customers, the findings also provide insight into the cultural problems that existed at Aviva, and that are being repeatedly highlighted within the industry as a whole by the regulator.

“The culture within the Fixed Income business was heavily focused on performance and promotions tended to be based on reported investment performance... While the Authority acknowledges Mr Miah’s motivation and the pressure that he felt as a consequence of the culture in the business, this does not excuse or justify his Cherry Picking in any way”

FCA Final Notice, November 2015

Internal Investigations

For his deliberate misconduct, Mr Miah has been fined £139,000 and prohibited for a minimum of five years from performing any regulated activity within the industry. Aviva on the other hand has had to pay out £132,000,000 in compensation to clients and also received a regulatory fine of £17,607,000.

Whilst Aviva had certain measures in place, they failed to exercise adequate and effective control thus allowing the weaknesses in procedures to be exploited.

Mark Steward, Director of Enforcement & Market Oversight at the FCA, recently raised this point in his Culture & Governance speech in that it is not simply enough for firms to have written procedures in place - they must actually be implemented, monitored and reviewed.

“because senior management cannot be watching everything all the time, there need to be effective systems and controls to ensure the business is operating effectively and in accordance with standards of conduct ... I remember another institution that created terrific systems and controls – but they were all on paper, not implemented. In yet another case, effective systems and controls had been implemented, but they were not maintained – no upkeep, no training for new staff, no repair, review or reporting. All of these mistakes were fatal ones.”

Mark Steward, “Culture & Governance” FCA Speech, 11th November 2015

In addition, Jamie Symington Director of Enforcement (Wholesale, Unauthorised Business and Intelligence) also stressed earlier this month that firms need to investigate internally when things do go wrong as they are “the front line in terms of achieving good standards of conduct in industry and markets.”

Systems and Controls: Compliance Monitoring

It is not only prudent for firms to monitor the effectiveness of their internal procedures, but also a regulatory requirement to have a compliance monitoring programme in place. In light of the approaching Senior Managers Regime for all firms in 2018, many will be considering undertaking an even more thorough review of their current systems and controls before assigning clear and detailed responsibilities to those within their businesses.

If you would like assistance with structuring your compliance monitoring programme or are in the process of monitoring your systems and controls and would like assistance or support in doing so, our team of experienced compliance professionals would be happy to assist, so please get in touch.

Compliance Monitoring: Treat Customers Fairly or be fined!