Aviva Pension Trustees UK and Aviva Wrap UK have been fined £8,246,800 for failing to have adequate controls and oversight of its outsourced providers.
In a statement today the Financial Conduct Authority revealed the two Aviva entities had broken rules in the Client Assets Sourcebook (CASS) which protect client money and custody assets if a firm becomes insolvent. Aviva breached requirements for firms to have adequate management, systems and controls, and properly safeguard clients' assets between 1 January 2013 and 2 September 2015.
It is the first case where a firm has broken CASS rules in relation to oversight failures of outsourced providers.
While there was no loss of client money or custody assets, the FCA said the failings are "serious" because the rules are in place to prevent this in the event of insolvency. Had Aviva suffered an insolvency event, there could have been losses due to not complying with the CASS rules.
The firm qualified for a 30% reduction in its fine after it agreed to settle at an early stage.
The Aviva entities had outsourced the administration of client money and external reconciliations for custody assets to third-party administrators (TPAs). However, Aviva failed to ensure it had adequate controls and oversight arrangements to effectively control these activities. The FCA said this led to the entities not sufficiently challenging the TPAs' internal controls, competence and resources.
It also failed to dedicate adequate resource and technical expertise to enable them to implement effective CASS oversight arrangements. This led to delayed detection and rectification of CASS risks and compliance issues.
The watchdog also said it discovered deficiencies with Aviva's internal reconciliation process which resulted in the under- and over-segregation of client money. During the period from 10 February 2014 to 9 February 2015 under-segregation peaked at £74.4m.
FCA director of enforcement and market oversight Mark Steward said other firms that outsource to TPAs should take heed:
"With outsourced arrangements firms remain fully responsible for compliance with our CASS rules. Firms are reminded that regulated activities can be delegated but not abdicated."
He added: "Other firms with similar outsourcing arrangements should take this as a warning that there is no excuse for not having robust controls and oversight systems in place to ensure their processes comply with our rules when CASS functions are outsourced.|"
The CASS rules require that companies holding customer money and assets ensure these are identified, recorded and held appropriately so they can be tracked, reconciled and returned to the customer when need.
Aviva UK Life chief executive officer Andy Briggs said: "We fully accept the findings of the FCA's review. This should not have happened and we are sorry. Aviva's customers have not suffered any loss and there has been no impact on advisers. We have addressed and resolved the issues identified.
"We have made improvements to ensure we have clear oversight of the processes undertaken on the adviser platform, and remain vigilant in our continued monitoring through a dedicated and expert team."
The firm has strengthened its governance and controls in relation to the administration of customer money and assets. It also recruited and established a specialist team focusing solely on oversight of customer money and assets processes.
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