Aviva Investors fined over 'cherry picking' trades

Aviva Investors has been fined £17.6m after its failure to manage conflicts of interest led to “cherry picking” by traders.

The Financial Conduct Authority (FCA) in Britain highlighted weaknesses in the company’s risk management as funds that paid differing levels of performance fees were managed by the same desk.

This created a situation where traders had an incentive to favour one fund over another.

Aviva’s asset management arm has since paid £132m in compensation to ensure that none of the eight funds involved was adversely impacted.

The FCA found that weaknesses in systems and processes meant traders could delay recording the allocation of executed trades for several hours.

By delaying the allocation of trades, employees who managed funds on a side-by-side basis could assess a trade’s performance during the course of the day and allocate trades that benefited from favourable intraday price movements to one fund and trades that did not to other funds – an abusive practice known as "cherry picking".

In May 2013, Aviva Investors found evidence to suggest that two former fixed income traders had been delaying the booking of, and improperly allocating, trades.

The FCA said the fine of £17.6 million would have been greater without the “exceptional” cooperation of Aviva’s management.

Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: “This case serves as an important reminder to firms of the importance of managing conflicts of interest effectively by implementing a robust control environment with effective systems to manage the risks.

“Not doing so risks customers’ interests being overlooked in favour of commercial or personal interests.”

Euan Munro, chief executive of Aviva Investors, said: “We have fixed the issues, improved our systems and controls, and ensured no customers have been disadvantaged.

“We have also made substantial changes to the management team which is leading the turnaround of Aviva Investors.”