Aviva failed to implement the right controls and oversight arrangements to monitor and control outsourced activities on its advised platform, said the regulator in its final note on Wednesday.
Cass rules
Under the FCA’s Client Assets Sourcebook (Cass) rules, firms should have adequate management, systems and controls and properly safeguard clients’ assets.
However, between 1 January 2013 and 2 September 2015, Aviva failed to have appropriate controls over third party administrators (TPAs) to which the insurer had outsourced the administration of client money and custody assets.
The FCA also found problems with insurance giant’s internal reconciliation process, resulting 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, revealed the regulator.
‘Serious failings’
Describing Aviva’s failings as “serious”, the FCA confirmed there was “no actual loss of client money or custody assets in this instance”.
However, the rules are designed to be “preventative” and had Aviva suffered an insolvency, customers could have lost money due to Aviva’s non-compliance with the Cass Rules, explained the watchdog.
In a damning statement, Mark Steward, the FCA’s director of enforcement and market oversight, said 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”.
“Aviva outsourced the administration of client money and external reconciliations in relation to custody assets, but failed to ensure that it had adequate controls and oversight arrangements to effectively control these outsourced activities.
“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,” said Steward.
The FCA confirmed that Aviva received a 30% discount on the original £11.7m fine, after the company agreed to settle during the early stages of the investigation.
