FCA Decision Notice against hedge fund for conflicts of interest failings

Jan 4, 2022 12:00:00 AM

What has happened?

In December 2021, the FCA published a Decision Notice against BlueCrest Capital Management (UK) LLP, setting out the reasons for its decision to impose a financial penalty of £40,806,700 on the firm.

What do you need to do?

The FCA considers that, between 1 October 2011 and 31 December 2015, BlueCrest failed to manage fairly a conflict of interest created by allocating the firm’s portfolio managers working on an external fund, open to investors outside BlueCrest, to an internal fund, open only to the firm’s partners and employees. The FCA found that the firm’s systems and controls did not manage the risk that these portfolio managers could be allocated in a way that favoured investors in the internal fund over those of the external fund. This resulted in a sub-standard investment management service being provided to the external fund and its investors.

The FCA has also imposed a requirement on BlueCrest to pay redress to clients who have suffered loss as a result of its failings.

A related case was publicised in the USA by the Securities and Exchange Commission in December 2020, when the SEC announced that BlueCrest had agreed to pay $170 million to settle charges arising from inadequate disclosures, material misstatements, and misleading omissions concerning its transfer of traders from its client fund, BlueCrest Capital International (BCI), to a proprietary fund, BSMA Limited, and the replacement of those traders with an underperforming algorithm. The SEC will distribute the $170 million to disadvantaged investors.

BlueCrest made inadequate and misleading disclosures for over four years concerning BSMA’s existence, the movement of traders from BCI to BSMA, the use of the algorithm in BCI, and associated conflicts of interest. It is understood that BlueCrest had transferred a majority of its highest-performing traders from BCI to BSMA and had assigned many of its most promising newly hired traders, eligible to trade for either fund, to BSMA.

How can we help you?

If you’d like to know more about how we can help you with your conflicts of interest arrangements, FCA Supervision or with any other regulatory compliance issues, our specialist team is here to help.

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