Fixed IncomeNov 17 2015

FCA fines ‘cherry picking’ Aviva analyst £139k

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FCA fines ‘cherry picking’ Aviva analyst £139k

The Financial Conduct Authority has today (17 November) fined Mothahir Miah, a former investment analyst at Aviva Investors, £139,000 and banned him from the industry.

He will not be allowed to perform any function in relation to any regulated activity in the financial services industry as he failed to act with honesty and integrity while at the firm.

Mr Miah had authority to trade on behalf of hedge and long-only funds. Between January 2010 and October 2012, he exploited weaknesses in trading systems and controls to delay the booking and allocation of trades.

This meant Mr Miah was able to assess the performance of a trade during the day and allocate trades which had benefitted from favourable price movements to hedge funds that paid performance fees and trades that had not benefited to certain long-only funds that paid lower or no performance fees.

This abusive practice is known as “cherry picking”.

Aviva Investors’ policies required Mr Miah to book details of each trade, including the amounts to be allocated to specified funds, into an online system within 15 minutes of trading on behalf of long-only funds.

When trading on behalf of a hedge fund, Mr Miah was required to report the details of the trade within an hour of the trade being executed.

The FCA found that Mr Miah deliberately delayed the booking and allocating of trades on a regular basis by several hours. This allowed him to cherry pick on numerous occasions.

Mr Miah knew the practice was wrong, but was motivated by a desire to prove his trading ability to his colleagues and increase prospects of being promoted.

This was because the culture within the fixed income business was heavily focused on performance and promotions tended to be based on reported investment performance, according to the regulator.

However, the FCA stated neither Mr Miah’s motivation nor the culture in the business excuse his cherry picking in any way.

Mark Steward, director of enforcement at the FCA, said that he abused the trust given to him by clients in a very clear and deliberate way.

“We have taken into account that Mr Miah admitted his misconduct at a very early stage to both Aviva Investors and the FCA and showed remorse for his actions.”

Mr Miah’s actions contributed to Aviva Investors having to pay significant compensation to a number of long-only funds. The FCA fined Aviva Investors £17.6m in relation to its failings on 24 February.

Mr Miah agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30 per cent discount. Were it not for this discount, the financial penalty would have been £198,600.