FSA fines Transact £3.5m for client breaches

Integrated Financial Arrangements, the firm behind Transact, has been fined £3.5m for failings in the protection of client money.

The Financial Services Authority (FSA) says Transact did not perform any client money calculations between 2001 and 2010.

A final notice issued by the FSA today states the wrap did not perform daily client money calculations to check amounts in client bank accounts matched the firm’s records. As a consequence it failed to identify or fund any shortfalls in its client money bank accounts that may have occured from buying and selling instructions occurring at differnet times.

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 firm should have funded any possible shortfalls from its corporate account. The FSA says the firm did not perform any client money calculations between 2001 and 2010.

The second breach relates to a failure to have adequate trust documentation in place for three of its 28 client bank accounts also putting client money at risk in the event of insolvency.

The failure was noticed as part of an FSA visit to IFA in May 2010 when it was noticed the firm had failed to carry out the calculations between December 1, 2001, and June 30, 2010. The amount of money held during that period averaged £508m. The FSA fine is calculated as a percentage of this £508m average.

The fine would have been £5m but it agreed to settle at an early stage, entitling it to a 30% discount.

No Transact clients have lost money as a result of the breaches, but the FSA has made the firm appoint a skilled person to review its client asset processes.

The FSA notice says: “Integrated Financial did not perform any client money calculations between 2001 and 2010 and as a consequence 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.”