The UK’s financial regulators gained the power to launch criminal prosecutions in 2001, but in the world of ‘light-touch’ supervision they continued to focus on civil actions. But at the depths of the financial crisis, and three months after the Bernard Madoff scandal broke in the US, in March 2009 FSA chief executive Hector Sants gave a landmark speech.
“There is a view that people are not frightened of the FSA... I can assure you this is a view I am determined to correct. People should be very frightened of the FSA,” he said.
The asset management industry’s ongoing success is based on its reputation for trustworthy stewardship of client assets John Kenchington
In February 2012, Threadneedle’s computer systems pounced on an attempted ‘rogue trade’ by a junior dealer, successfully preventing any client detriment. In January 2013 a Schroders equity trader was arrested and the following month a GLG analyst was arrested – neither was charged. In March this year a former senior equities dealer at Legal & General was sentenced to two years in prison for insider trading.
Now comes the arrest of Mr Lyttleton, who was a pioneer of bringing ‘absolute return’ strategies to retail investors in his time running the firm’s Absolute Alpha fund. Neither Mr Lyttleton nor the Schroders and GLG staff have been charged with any crime, and in all of these cases it has been stressed that the investigations related to their personal actions and there was no client detriment.
But the asset management industry’s ongoing success is based on its reputation for trustworthy stewardship of client assets, and even if there is no wrongdoing these headlines put that at risk.
Fund managers getting nicked is also unhelpful for the intermediaries that rely on the industry’s reputation in dealing with their clients.
A well-judged BlackRock statement last week said that neither the firm itself nor any current employee of the firm was under investigation. It said “the alleged behaviour is totally contrary to the firm’s principles and values. BlackRock strongly supports aggressive enforcement of the law in these matters.”
If fund management trade body the IMA were to publish an industry-wide pronouncement to the same effect, it might help to preserve the industry’s standing – and make intermediaries’ lives easier in responding to client queries on the issue.
John Kenchington is editor of Investment Adviser