Aviva fined €2.4m for ‘stock lending’

The Central Bank has imposed a €2.45m fine on the insurance firm Aviva over regulatory breaches in relation to complex financial transactions known as stock lending.

Two fines of €1.225m each were applied to two separate Aviva subsidiaries — Aviva Insurance Europe and Aviva Life & Pensions Ireland.

The penalty is the fifth largest handed down by the Central Bank.

The fine relates to the failure by the two Aviva companies, which are regulated by the Irish Central Bank, to properly monitor and control stock lending carried out by Aviva investment managers on their behalf between 2005 and 2011.

Stock lending is a system whereby a firm that holds a stock can ‘lend’ these securities to a third party for the purpose of short selling them. The lender, in this case Aviva Investors Global Services Ltd, (AIGSL) received a fee for lending out the stock.

However, it is up to the insurance firms — Aviva Insurance Europe and Aviva Life & Pensions Ireland — to monitor and control stock lending activities by AIGSL and other Aviva investment managers, and ensure proper reporting of these transactions.

The regulatory failures emerged during a routine Central Bank review of liquidity swaps among insurance firms.

During this review the Dame St-headquartered institution uncovered the breaches in relation to stock lending.

The Central Bank also found that “the firm did not set risk limits in respect of stock lending, and did not receive regular information from its risk management function on assets exposure and the associated risks in respect of stock lending”.

Fiona Muldoon, director of credit institutions and insurance supervision at the Central Bank, and Peter Oakes, director of enforcement, issued a joint comment, stating: “The Central Bank reminds firms that they remain responsible for all regulatory obligations notwithstanding any reliance upon group controls or group limits.”

In a statement issued by Aviva, it said it accepted the findings that the systems and controls that had been in place since 2002 covering stock lending were inadequate.

Aviva said it took prompt action to rectify these breaches when they were identified. It stressed that none of its clients’ funds were compromised by these actions and that it fully co-operated with the Central Bank.

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