The FCA has fined State Street Bank Europe Limited and State Street Global Markets International Limited (State Street UK) a financial penalty of £22,885,000 in respect of breaches of Principle 3, 6 and 7 of the Authority’s Principles for Businesses during the period 1 January 2010 to 30 September 2011.

State Street UK was awarded a 30% discount on the fine for settling at an early stage in the investigation (Stage 1).

The FCA said six clients of the transition management (TM) business had been overcharged by a total of $20.2m for TM services between June 2010 and September 2011. TM is a service provided to clients to support structural changes to asset portfolios with the intention of managing risk and increasing portfolio returns. The relevant clients of the business were predominantly large investment management firms or asset owners (including pension fund trustees) holding the pension funds or savings of retail investors.

State Street UK failed to treat its customers fairly by allowing a culture to develop in the UK TM business which prioritised revenue generation over interests of customers. The FCA said that the TM business developed and executed a deliberate and targeted strategy to charge substantial mark-ups on certain transactions.

State Street UK also failed to take reasonable care to organise and control its affairs effectively with adequate risk management systems. The misconduct only came to light after a client notified staff that it had identified mark-ups on certain trades that had not been agreed.

The failings in this case were viewed as particularly serious partly because State Street UK was acting as agent to its clients and breached a position of trust. Furthermore, weaknesses in State Street UK’s control environment around the TM business were so serious that the overcharging remained undetected until it was identified by a client. The FCA considered that a lack of a compliance culture in the TM business was a key factor in why staff did not escalate concerns to compliance.

View State Street: Final notice, 30 January 2014