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Martin Currie hit by £8.6m regulatory fine for China failings

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Martin Currie hit by £8.6m regulatory fine for China failings

Edinburgh-based asset manager Martin Currie has been fined £3.5 million and $8.3 million (£5.1 million) respectively by the FSA and US Securities Exchange Commission (SEC) over failings relating to unlisted investments the firm made in China back in 2007.

The investment in three unlisted bonds by its specialist China business was judged to have represented a serious conflict of interests between different client accounts at the firm and Martin Currie parted company with that business, China Fund Inc, headed by Christopher Ruffle, in July 2011.

The firm, headed by chief executive Willie Watt, has endured a tough time since the discovery of  the three unlisted China investments  despite having brought the matter to the regulators' attention. It has seen assets under management slip from around £11 billion to £5 billion since the disclosure was made and referred to the FSA and SEC.

Having fully underwritten any potential losses to clients from the China investments, which the company said had made up less than 1% of its business at the time, Watt said he believed that the fines would bring closure to what has been a turbulent period for the firm.

Asset falls have also been exacerbated by maket falls in the last year in its favoured Asia Pacific regions and due to the loss of some major institutional clients and come despite decent perormance from a number of its alternative Ucits strategies as well as its global equity income fund.

Watts believes that the process is now at an end and will allow the firm to refocus on its core business strategies.

In a letter sent to clients, Watt said: 'The incident also exposed certain weaknesses in Martin Currie’s systems and controls.  We reported this incident to both the Financial Services Authority (FSA) and SEC and promptly instigated a thorough investigation to establish the facts and lessons to be learnt.'

He added: 'We do not expect any further sanctions or remedial actions as a result of the issues covered by the settlements. These settlements do not impact adversely on our ability to continue to manage our clients’ assets or our business around the world.'

'Throughout our reviews we worked openly with the regulators sharing with them all of the details they required. They recognise the work we have done to fix this issue and respond swiftly to fully compensate the client that was potentially disadvantaged and return the related fees earned.'

The group had been in the middle of a restructuring process realligning the business to focus away from the UK and onto emerging markets, and Asia in particular, as well as on alternative ucits products. It has now completely reassessed and rebuilt its risk and compliance department.

Faced with the tough economic backdrop and recent outflows, the firm has also announced new financial backing from its two external funding partners, RIT Capital Partners, and US private equity group Crestview Partners.

The new cash injection will add £26 million to the balance sheet and the firm said it would take the company to 300% of its capital ratio requirements. In the letter both firms reiterated their long term support for the firm.

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