Aviva Investors Global Services, part of insurance company Aviva, has paid out £150m in fines and compensation after failing to control conflicts of interest, Britain's markets watchdog said today.
The UK's Financial Conduct Authority said it fined Aviva Investors £17.6m for systems and controls failings spanning eight years to June 2013.
"These weaknesses led to compensation of £132m being paid to ensure that none of the funds Aviva Investors managed was adversely affected," the regulator said.
Aviva Investors, which manages £240 billion on behalf of customers, used a management strategy whereby funds that paid different levels of performance fees were managed by the same trading desk.
The same people were managing hedge funds, which typically pay a high fee for outperforming the market, and so-called long funds that pay much lower fees. Some of these fees were paid to traders who managed the funds.
"This type of incentive structure created conflicts of interest as these traders had an incentive to favour one fund over another," the watchdog said. This abusive practice is known as "cherry picking", it said.
Traders were able to delay recording the allocation of trades for several hours without being detected internally.
Compensation was paid to eight funds managed by Aviva on behalf of other companies within the group.
Aviva Investors said it had co-operated fully with the regulator over the breaches.
"We fully accept the conclusions of this investigation," Euan Munro, chief executive of Aviva Investors, said in a statement.
"We have fixed the issues, improved our systems and controls and ensured no customers have been disadvantaged," he added.
The UK regulator said Aviva worked with the watchdog in an exceptionally open and co-operative manner and qualified for a 30% discount to its fine because of early settlement.
The watchdog has warned the funds industry on the need to manage conflicts effectively in a market review and letters to chief executives of asset managers in November 2012. "This will continue to be an area of focus for the authority," it said.
