The UK Financial Conduct Authority (FCA) has fined Aviva, the UK life insurance company, £8.2 million (€9.3 million) for failing to ensure client assets were protected under outsourcing arrangements between January 2013 and September 2015.
The FCA found Aviva had outsourced the administration of client money and external reconciliations in relation to custody assets, but failed to ensure it had adequate controls and oversight arrangements to effectively control these outsourced activities.
As a result, Aviva failed to detect and rectify Client Asset Sourcebook (Cass) risks and compliance issues in time.
Cass rules are intended to ensure client assets are adequately protected in the event of a firm’s failure – although no actual client money was lost, Aviva did suffer an insolvency during the period, meaning customers could have incurred losses due to non-compliance.
The fines were for failings specifically at Aviva Pension Trustees UK Ltd and Aviva Wrap UK Ltd.
Mark Steward, director of enforcement and market oversight at the FCA, said other firms with similar outsourcing arrangements should take this, the first Cass case in relation to oversight failures, as a warning.
“There is no excuse for not having robust controls and oversight systems in place to ensure [a firm’s] processes comply with our rules when Cass functions are outsourced. We will continue to take action against firms that fall short of our Cass Rules,” he added.
The FCA also found deficiencies with Aviva’s internal reconciliation process between February 2014 and February 2015, which resulted in the under- and over-segregation of client money. During this period under-segregation peaked at £74.4 million.
Aviva’s catalogue of failings also resulted in the firm being unable to meet key obligations, such as submitting accurate client money and asset returns, and maintaining an adequate Cass resolution pack.
Andy Briggs, chief executive of Aviva, said the firm was sorry for the breach and that the issues had been resolved with no losses to customers or financial advisers.
Aviva agreed to settle at an early stage, reducing the original fine of £11,781,262 by 30%.
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