Copying and distributing are prohibited without permission of the publisher
FCA fines State Street for TM failings
03 February 2014
State Street UK’s transition management business overcharged clients $20,169,603
The UK regulator has fined State Street UK £22.9m for its
failings in managing transitions for clients including pension
The Financial Conduct Authority (FCA) found that between June
2010 and September 2011 the bank’s transition
management business overcharged six clients a total of
$20,169,603. That figure accounted for more than a quarter of
the business’s revenue.
In its ruling, the FCA said the business had "developed and
executed a deliberate strategy to charge clients substantial
mark-ups on certain transitions", in addition to the agreed
management fee or commission. These mark-ups had not been
agreed by the clients and were hidden from them.
State Street UK’s clients include large investment
management firms and pension funds.
Tracey McDermott, director of enforcement and financial crime,
said: "The findings we publish today are another example of a
firm that has acted with complete disregard for the interests
of its customers. State Street UK allowed a culture to develop
in the UK TM business which prioritised revenue generation over
the interests of its customers.
"State Street UK’s significant failings in culture
and controls allowed deliberate overcharging to take place and
to continue undetected. Their conduct has fallen far
short of our expectations. Firms should be in no doubt that the
spotlight will remain on wholesale conduct."
The FCA judged that the bank had breached three of the
regulator’s Principles of Business. It failed to
treat its customers fairly; it failed to communicate with
clients in a way that was clear, fair and not misleading; and
it failed to take reasonable care to organise and control its
affairs responsibly, with adequate risk systems.
The FCA said the bank’s failings were at the most
serious end of the spectrum.
The overcharging only came to light once a client told staff it
had noticed mark-ups on certain trades that had not been
agreed, according to the regulator.
"Those responsible then incorrectly claimed both to the client
and later to State Street UK’s compliance
department that the charging was an inadvertent error, and
arranged for a substantial rebate to be paid on that false
basis. They deliberately failed to disclose the existence of
further mark-ups on other trades conducted as part of the same
Once senior management became aware of the issue State Street
UK took action to investigate the misconduct and to implement a
comprehensive programme to improve the business controls and
bolster control functions, governance and culture across its UK
In 2011 the bank dismissed certain individuals that were
centrally involved in the overcharging.
In a statement State Street said: "Today brings to a conclusion
the FCA’s inquiry into the overcharging of six
Emea-based transition management clients in 2010 and 2011 that
we self-reported in 2011. We deeply regret this
matter. Over the past several years, we have worked hard
to enhance our controls to address this unacceptable situation.
"The FCA in its notice is critical of our business controls
within the UK transition management business and our control
functions in the UK at that time. We acknowledge these as
historical problems and have undertaken extensive efforts to
address both, including strengthening the controls, procedures
and governance within our UK transition management
"In 2011, we dismissed individuals centrally involved in the
overcharging of transition management clients. Their behavior
was unacceptable and a significant departure from the high
standards of conduct and transparency that we expect and
certainly not consistent with the manner in which our employees
act on behalf of clients every day.
"Also in 2011, we notified all transition management clients
about the overcharging, only six of whom were directly
affected. We continue to have an open and transparent dialogue
with our transition management clients to ensure they are aware
of the actions we have taken over the past several years to
strengthen our controls.
"We believe we now have industry leading controls within our
transition management business and have bolstered our control
functions in the UK, broadening the depth of talent that
oversees our businesses.
"We have fully cooperated with the FCA during their
investigation and appreciate that the FCA’s notice
acknowledges the overcharging identified in the settlement
relates only to our UK transition management business, that we
have implemented a comprehensive remediation program in
relation to the controls around the UK TM business, and that we
have bolstered our control functions, governance and culture
across all of our UK businesses.
"We are confident that we have addressed the weaknesses
highlighted in the FCA’s notice and as a result,
have emerged as a stronger organisation."
State Street UK agreed to settle at an early stage of the
FCA’s investigation and has therefore qualified
for a 30% discount. Were it not for this discount, the FCA
would have imposed a financial penalty of £32,692,800 on
State Street UK.