The biggest retail fund house in the UK received the penalty, reduced by 30 per cent due to its early co-operation with the regulator, after conducting 33 trades that breached regulatory rules around investment limits across 15 of its funds.
The breaches, which occurred between 2008 and 2012, affected funds that hold 70 per cent of the firm’s total assets under management, including the £13.5bn Invesco Perpetual High Income fund and the £8.3bn Invesco Perpetual Income fund.
The fine partly related to funds managed by former manager Neil Woodford, who resigned from the company this month to set up his own fund management group through Oakley Capital. The FCA did not name all the funds involved in the system failures and declined to say whether any individuals were being investigated.
The FCA and Invesco declined to comment on whether Mr Woodford’s departure last month was linked to the regulatory action.
In a 39-page final notice published by the FCA on 28 April, Invesco Perpetual was also punished for failing to put adequate controls in place to “ensure that all funds were valued accurately and that all trades were allocated fairly between funds”, as well as failing to record trades on time.
It was also censured for introducing leverage of up to £1bn into certain funds without properly informing investors in relevant simplified prospectuses, and incorrectly describing the effect of derivatives in key investor information documents produced in 2012.
Tracey McDermott, director of enforcement and financial crime for the FCA, said it had issued a fine that was around four times greater than total losses caused by the incursions, valued at £5.3m, reimbursed, because it was a “forward-looking regulator”.
Key points
- Invesco was permitted to use derivatives in portfolios of equity funds but the size of leverage, 5%, in large funds, led to £1bn of additional exposure.
- Invesco failed to disclose the use of derivatives in simplified prospectuses in 2008 and 2011.
- The risks of high leverage were not accurately described in the KIIDs that replaced them in February 2012.
- Invesco breached investment limits designed to ensure diversification.
Reaction Round-up
Mark Armour, chief executive officer of Invesco Perpetual, said: “We are confident that our systems and controls are now strong, effective and compliant with all applicable regulations. The small number of affected funds were fully reimbursed. In this instance, we clearly fell short of the high standards we consistently strive to deliver.”
Ashley Kovas, head of funds at specialist financial services regulatory consultancy Bovill, said: “Large firms that generate high levels of revenue now face eye-wateringly high fines because the FCA can fine them a percentage of their revenue. There is now much more money at stake for firms that find themselves in the FCA’s firing line.”
Pete Matthew, managing director of Cornwall-based Jacksons Wealth Management, said: “Invesco is pretty good at client care generally and even though this is a fairly major hiccup, it can withdraw from the bank of good feeling that’s been built up by effective marketing, good client relations and excellent investment performance. Clients will take confidence from the fact that the problems have been rectified quickly.”
