Irish central bank fines Aviva €2.45 million over securities lending
20 December 2012 Dublin
Image: Shutterstock
The Central Bank of Ireland has fined insurance firm Aviva because it failed to properly check and control its securities lending programme.
Two fines of €1.225 million each were handed down to separate Aviva subsidiaries—Aviva Insurance Europe and Aviva Life & Pensions Ireland.
The fine is reportedly the fifth largest that the central bank has ever issued.
The central bank’s insurance directorate discovered regulatory breaches in the Aviva subsidiaries’ securities lending programmes when it conducted a survey into insurance companies’ use of liquidity swaps.
Aviva Insurance Europe and Aviva Life & Pensions Ireland entered into an investment management agreement with Aviva Investors Ireland—another subsidiary—in November 2000.
This agreement was amended in 2002, allowing Aviva Investors Ireland to outsource securities lending to a different subsidiary, Aviva Investors Global Services.
In June 2010, a novation occurred and the rights of Aviva Investors Ireland under the agreement transferred to Aviva Investors Global Services, and the subsidiary continued to perform securities lending on behalf of Aviva Insurance Europe and Aviva Life & Pensions Ireland.
Between 2004 and 2012, the central bank found evidence that the firms failed to properly monitor and control securities lending that was carried out on their behalf, and that they did not review the adequacy of their overall investment policies.
It also found that the firms did not set risk limits in their securities lending programmes, or receive regular information on asset exposures and the risks that are associated with the practice.
In a joint statement, the central bank’s director of credit institutions and insurance supervision, Fiona Muldoon, and director of enforcement, Peter Oakes, said: “Where a firm outsources investment activity, it must ensure that it has adequate investment policies, procedures and quantitative parameters to manage that investment activity in a way that is appropriate to the firm’s balance sheet, and that it has sufficient information to allow it to properly monitor and control that activity.
“It is inadequate and unacceptable for firms to rely on group controls or group limits. The central bank reminds firms that they remain responsible for all regulatory obligations notwithstanding any reliance upon group controls or group limits.”
In a statement, Aviva reportedly said that it accepted the central bank’s findings and promptly rectified identified regulatory breaches, adding that none of the breaches affected its clients.
The Aviva subsidiaries shelved their securities lending programmes after the problems were identified. The central bank now considers the matter closed.
Two fines of €1.225 million each were handed down to separate Aviva subsidiaries—Aviva Insurance Europe and Aviva Life & Pensions Ireland.
The fine is reportedly the fifth largest that the central bank has ever issued.
The central bank’s insurance directorate discovered regulatory breaches in the Aviva subsidiaries’ securities lending programmes when it conducted a survey into insurance companies’ use of liquidity swaps.
Aviva Insurance Europe and Aviva Life & Pensions Ireland entered into an investment management agreement with Aviva Investors Ireland—another subsidiary—in November 2000.
This agreement was amended in 2002, allowing Aviva Investors Ireland to outsource securities lending to a different subsidiary, Aviva Investors Global Services.
In June 2010, a novation occurred and the rights of Aviva Investors Ireland under the agreement transferred to Aviva Investors Global Services, and the subsidiary continued to perform securities lending on behalf of Aviva Insurance Europe and Aviva Life & Pensions Ireland.
Between 2004 and 2012, the central bank found evidence that the firms failed to properly monitor and control securities lending that was carried out on their behalf, and that they did not review the adequacy of their overall investment policies.
It also found that the firms did not set risk limits in their securities lending programmes, or receive regular information on asset exposures and the risks that are associated with the practice.
In a joint statement, the central bank’s director of credit institutions and insurance supervision, Fiona Muldoon, and director of enforcement, Peter Oakes, said: “Where a firm outsources investment activity, it must ensure that it has adequate investment policies, procedures and quantitative parameters to manage that investment activity in a way that is appropriate to the firm’s balance sheet, and that it has sufficient information to allow it to properly monitor and control that activity.
“It is inadequate and unacceptable for firms to rely on group controls or group limits. The central bank reminds firms that they remain responsible for all regulatory obligations notwithstanding any reliance upon group controls or group limits.”
In a statement, Aviva reportedly said that it accepted the central bank’s findings and promptly rectified identified regulatory breaches, adding that none of the breaches affected its clients.
The Aviva subsidiaries shelved their securities lending programmes after the problems were identified. The central bank now considers the matter closed.
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