The U.K. Financial Conduct Authority (FCA) announced Wednesday its intention to fine hedge fund BlueCrest Capital Management £40,806,700 (U.S. $55.5 million) for failing to manage fairly a conflict of interest.
The FCA added it intends to require BlueCrest to pay redress to clients who have suffered loss because of its alleged actions.
The regulator said the findings in its decision notice are “provisional and only reflect the FCA’s views at this stage,” since BlueCrest has yet to make representations. BlueCrest has exercised its right to challenge both the decision notice and the redress requirement before the U.K. Upper Tribunal, “which will determine the appropriate action, if any, for the FCA to take.”
The tribunal’s ruling in the case will be made public.
According to the FCA, between October 2011 and December 2015, BlueCrest “failed to manage fairly a conflict of interest created by allocating portfolio managers working on an external fund, open to investors outside BlueCrest, to an internal fund, open only to its partners and employees.”
The FCA found the hedge fund’s systems and controls “did not manage the risk that portfolio managers could be allocated in a way that favored investors in the internal fund over those of the external fund.” The regulator said this “resulted in a sub-standard investment management service being provided to the external fund and its investors.”
In its decision notice, the FCA said compliance and internal audit staff at BlueCrest were responsible for managing and monitoring individual instances of potential conflict of interest.
“Compliance’s focus during the relevant period was on BlueCrest’s external funds and considering conflicts at a platform level (i.e., across all BlueCrest funds),” the regulator stated. “Compliance was not actively aware of who was exposed to the internal fund or the level of exposure. … [BlueCrest] did not implement sufficient compliance controls in order to monitor the conflicts of interest associated with the allocation of portfolio managers to the internal fund.”
In December 2020, BlueCrest agreed to pay $170 million as part of a settlement with the U.S. Securities and Exchange Commission (SEC) to resolve charges arising from inadequate disclosures, material misstatements, and misleading omissions concerning its transfer of traders between two of its funds. The FCA acknowledged the SEC’s assistance in its case.