Threadneedle fined for misleading authorities
Threadneedle Asset Management, now known as Columbia Threadneedle, has been fined more than £6 million for falling short of regulatory standards and then misleading authorities over the steps it had taken to remedy the problem.
In 2011 the then-regulator the Financial Services Authority (FSA) approached Threadneedle about concerns over the fixed income area of the company, including the emerging market debt (EMD) and high yield desks. The FSA was concerned about the frequency of errors occurring in that area of the business, but also alarmed that the way trades were conducted would allow people to initiate trades in funds of which they themselves were not managers.
Although Threadneedle responded that it had appointed several individuals to be responsible for these areas of business, it later emerged that the individuals’ responsibilities were not as broad as Threadneedle had initially described, and that the regulator’s concerns had not been properly addressed.
Weaknesses in Threadneedle’s trading system were brought to light in August 2011 – mere months after Threadneedle’s response to the FSA – when a rogue trader tried to purchase $150 million worth of Argentinian warrants on behalf of three Threadneedle funds at four times their market value. The transaction did not complete but if it had, it would have incurred a $110 million (£70 million) loss to the company.
In a statement to the press, Threadneedle says it has since improved systems to such a point that the previous weaknesses no longer exist.
Regarding the misleading report it submitted to the regulator, the firm adds: ‘In addition, the Financial Conduct Authority (FCA) found that a report on the adequacy of Threadneedle’s front office operating controls submitted in June 2011 did not accurately describe the trading processes in place on the EMD and high yield desks.
‘It has always been Threadneedle’s intention to keep the regulator appropriately informed. We acknowledge that our response was not as full as it should have been and we have apologised to the regulator for this.’
Because it cooperated with the FCA’s investigation, Threadneedle received a 20 per cent discount on what would otherwise have been a £7.5 million fine.
In August 2015, Co-operative Bank was publicly chastised for misleading regulators over whether it was holding adequate capital in reserves.
In November 2015, the FCA fined Barclays Bank £72 million for failing to adequately ensure it wasn’t being used to facilitate financial crime.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.