The Financial Conduct Authority (FCA) has fined SEI Investments (Europe), a provider of asset management and wealth management services, £900,200 for failings in relation to its protection of client money.

The UK's Financial Conduct Authority has fined SEI
Investments (Europe), a provider of asset management and wealth management
services, £900,200 ($1.455.17 million) for failings in relation to its protection of client money.

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, the FCA said in a statement.

“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,” said Tracey McDermott, director of
enforcement and financial crime.

“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,”
McDermott added.

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reconciliation of client money was paid into or withdrawn from the client bank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.

Whilst the FCA 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 per cent discount. Without the settlement discount, the fine
would have been £1,286,000.

In response to the fine, SEI Investments (Europe) confirmed
that it has resolved an historic and technical issue relating to the FCA’s
Client Assets Sourcebook (CASS), which involves a settlement payment of
£900,200.

Whilst SEI regrets that this situation arose, at no time was
any loss or detriment caused to any of SEI’s customers. All client money was
fully segregated from SEI assets at all times, with appropriate trust
protection, SEI said in a response statement.

SEI Investments said that despite using a client money
calculation that had been certified annually since 2007 by SEI’s CASS 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 FCA’s latest fine is a clear signal that protecting client money is an imperative for all financial institutions.The
FCA is committed to deploying a huge increase in resources to detect
non-compliance, so firms holding client assets need to strengthen
financial controls and conduct rigorous reviews
of governance processes to ensure immediate adherence to not only the
rules but also best practice," said Jim Muir, director of AutoRek.

"Coupled with a warning that asset management
firms need to be more rigorous in their supervision of outsourcers, it
is clear that this latest fine is going to trigger a series of related
inspections. Far too many firms have corruptible,
unauditable and unsustainable manual reconciliations and calculations.
Organisations must invest the time in ensuring they can prove
compliance. Introducing measures, such as automated client money
reconciliations, calculations and reporting, improving record
keeping and the segregation of duties, will help minimise the risk of
those severe penalties and – arguably much more long-lasting – the
danger of personal and corporate reputational damage," added Muir.