SEI, a provider of asset and wealth management services, settled the fine at an early stage. Without doing so the fine would have been higher at £1.286m. Under the FCA's client money rules, firms are required to keep client money separate from the firm's money in client bank accounts with trust status.
Firms that undertake client transactions and hold client money should perform daily client money calculations (referred to in the FCA Client Asset Sourcebook (CASS) rules as internal reconciliations) to check that they are segregating the correct amount of client money so that in the event of the firm's insolvency, client money is returned to clients as quickly and easily as possible.
Tracey McDermott, director of enforcement and financial crime, said: "SEI has committed a serious breach by failing to comply with our client money rules for over 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."
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Between November 2007 and October 2012, SEI failed on several occasions to perform its internal reconciliations, failed on several occasions to ensure that any shortfall or excess identified in its internal reconciliation of client money was paid into or withdrawn from the client bank account by close of business on the day of the internal reconciliation, and failed to appreciate that it was using a non-standard method of internal reconciliation. SEI therefore failed to ensure that it maintained its records and accounts in a way that ensured their accuracy.
Failings were found throughout SEI's client money processes, indicating that SEI's client money arrangements were inadequate. SEI failed to train employees with operational oversight and responsibility for client money.
On one occasion, an SEI employee who had not received any CASS training manually adjusted SEI's client money requirement from the £14 million calculated using the internal client money reconciliation to £932,000, on the basis of his assumption that the £14 million shortfall was of an unprecedented amount and was therefore inaccurate.
Had SEI become insolvent, these failings could have led to complications and delay in distribution and placed client money at risk. The average daily balance of the client money accounts during the relevant period was approximately £84.3m.
While the FCA says it considers the failings to be serious, there was no actual loss of client money in this instance. However, the rules are designed to be preventative. Had SEI suffered an insolvency event during this period, customers could have suffered loss due to SEI's non-compliance with the Client Money Rules.
SEI has cooperated with the FCA during its investigation, invested in external consultants, and has restructured its operational model. SEI agreed to settle at an early stage and in doing so it qualified for a 30% discount. Without the settlement discount, the fine would have been £1,286,000.