(November 26, 2013) — The Financial Conduct Authority (FCA) has fined SEI Investments £900,200 for “a serious breach” in its protection of client money.
The UK’s financial regulator found that on several occasions between 2007 and 2012, SEI failed to perform its internal reconciliations, failed to ensure that any shortfall or excess identified in its internal reconciliation of client money was paid into or withdrawn from the client bank account by close of business, and failed to appreciate that it was using a non-standard method of internal reconciliation.
In addition, the FCA found SEI had failed to sufficiently train employees with operational oversight and responsibility for client money. All of the failings applied to both its asset management and its wealth management business, according to an FCA spokesman.
No client money was lost during the period, but the FCA decided to take proactive steps. If had SEI become insolvent, these failings could have led to additional complications and delays in distribution, placing client money at risk.
On one occasion highlighted by the regulator concerned an SEI employee who had not received any client assets sourcebook training—that is, on the requirements relating to holding client assets. The employee manually adjusted SEI’s client money requirement from the £14 million calculated using the internal reconciliation to £932,000, on the basis of his assumption that the £14 million shortfall was of an unprecedented amount and was therefore inaccurate.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: “SEI has committed a serious breach by failing to comply with our client money rules for more than five years. We have repeatedly emphasised the importance of ensuring that client money is adequately protected and we have taken a number of enforcement actions against firms of all sizes for breaches of our rules in recent years.
“Firms that hold client assets should ensure they continue to strengthen their management, oversight and controls in this area. We will continue to take action to ensure that procedures at firms meet our client asset requirements and action will be taken against firms that fall short.”
SEI agreed to settle at an early stage and in doing so it qualified for a 30% discount on the penalty. Without the settlement discount, the fine would have been £1.3 million.
In a statement, SEI said it regretted that the situation arose, and stressed that the FCA’s observations centred on staff training and a technical calculation methodology in relation to FCA client money requirements.
It appeared, however, to dispute the FCA’s claims that it had failed to comply with the regulator’s client money rules for more than five years.
“Despite using a client money calculation that had been certified annually since 2007 by SEI’s client assets sourcebook auditors as compliant, in 2012 the FCA determined that the calculation varied from its standard methodology. During the relevant period, SEI and its external auditors were not aware of any reason why the calculation model used did not offer at least as much protection as the FCA standard calculation,” the statement said.
SEI said that since 2012, it had invested significantly in reviewing and enhancing its arrangements, and had obtained approval of its arrangements from external experts approved by the FCA in March 2013.
“SEI has used this review to continue to thoroughly test all areas of client asset sourcebook compliance and significant investment continues to be made in technology and training to ensure SEI is in the best possible position to fully adhere and adapt to the evolving regulatory framework,” it concluded.
The company is best known for its fiduciary management work, which it established in 1992. Today, SEI acts as a fiduciary manager to more than 450 pension, non-profit, and healthcare clients in seven different countries.