Transact fined £3.5m for client money breaches

The FSA has fined Integrated Financial Arrangements plc, which offers the Transact platform, £3.5m for failings in relation to its protection of client money over an eight-and-a-half year period.

The FSA visited Integrated Financial in May 2010 and found that, although it had segregated client money from its own money upon receipt, it had failed to comply with client money rules between 1 December 2001 and 30 June 2010.

Specifically, Integrated did not perform any client money calculations between 2001 and 2010 and, as a result, failed to identify or fund any shortfalls in its client money bank accounts.

This meant that money belonging to one client was used to cross fund other clients and resulted in clients' money being at risk if Integrated Financial became insolvent.

The regulator said Integrated also failed to put in place adequate trust documentation for three of its 28 client bank accounts which also put client money at risk in the event of the firm's insolvency.

Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in client bank accounts with trust status.

Firms that undertake client transactions and hold client money should perform daily client money calculations to check that the amount in the client bank accounts matches the firms records.

The amount of client money held by Integrated Financial during the period averaged £508m. Transact was fined 1% of that amount - £5m - but qualified for a 30% discount for early settlement.

The FSA has made clear no Transact customers suffered any loss or detriment as a result of the breaches.

Tracey McDermott, acting director of enforcement and financial crime, said: "Integrated Financial has committed a serious breach by failing to comply with our client money rules for a significant period of time.

"The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected and in the past year has taken enforcement action against firms of all sizes for breaches of its client money rules."

Integrated Financial will pay the fine from its own resources, which it said would have no impact upon the operation of client portfolios or the value of investments.

Ian Taylor, CEO, Integrated Financial Arrangements, said: "The essential point to make is that no client has suffered detriment or loss as a result of the breaches.

"Nevertheless, we are chastened. Achieving the highest standards in regulatory compliance is of central importance to our business; we will work tirelessly to reassure our clients, shareholders, staff and business partners that the problem is in the past and we are now fully compliant.

"We believe that our financial strength and market position will make this process easier. In the meanwhile, work continues uninterrupted to maintain our position as the best wrap service in the market, and to service our clients to the usual high standards."