The Financial Conduct Authority has fined Invesco Perpetual, the largest UK retail investment manager £18.6m for exposing investors to greater levels of risk than they had been led to expect. Funds suffered losses amounting to £5.3m though the FCA said there had been a risk that losses could have been even greater.
The regulator said that between May 2008 and November 2012 broke FCA rules that limit investors’ risks on 33 occasions. It also failed to disclose the use of derivatives in simplified prospectuses, and incorrectly described the impact of using derivatives in the key investor information documents.
It also failed to record trades on time, as a result of which funds could have been wrongly priced, and it didn’t monitor whether trades were allocated fairly between various funds, creating a risk that some funds may have been disadvantaged.
“Invesco Perpetual acted quickly to improve its systems and controls and to remediate the issues identified by the FCA,” the regulator said in a statement, adding that the firm agreed to settle at an early stage, reducing its fine by 30%. Invesco Perpetual has also compensated the funds for their losses.
"Inaccurate information, incomplete data"
The FCA’s Final Notice says that the firm had failed to put in place adequate systems and controls to ensure that it recorded trades in all fixed income funds on a timely basis. As a result, between 2010 and 2011, at least 9% of trades in fixed income funds were not recorded on the day of execution, creating a risk that the daily valuation of these funds would be inaccurate. “This placed investors at a risk of loss, because: (a) fund managers may have made inappropriate investment decisions because they were based on an inaccurate valuation of the portfolio; [and] (b) compliance checks would have been carried out on incomplete data,” the FCA said.
Although units in the funds affected may not have been correctly priced, the FCA said that a subsequent review by Invesco Perpetual’s Internal Audit department did not identify any material compensatable errors.
The FCA’s statement can be found by clicking here.