Lannebo, Case Asset among firms hit by Swedish regulatory fines

Finansinspektionen, the Swedish Financial Supervisory Authority, has issued fines against five financial service companies – including asset managers – totalling SEK37.9m (€4.2m)and withdrawn the licence of a sixth company.

Among those hit are Lannebo Fonder, Case Asset Management, Marginalen Bank Bankaktiebolag, Maxima Finans & Försäkringsmäklare, Kredit AB Marginalen, and E. N. Sak Försäkring.

Possibly the most notable of these is Lannebo (chairman Anders Lannebo pictured above). The boutique is well known for its Swedish equity portfolios, particularly in the area of smaller companies. As recently as August 2011, the Lannebo Småbolag was added to Morningstar’s suggested high risk portfolio of PPM funds, alongside AP7 Aktiefond, Nordea Selekta Europa, Skagen Global and Carlson Asian Small Cap. Morningstar identifies Lannebo Sverige 130/30 as its “PPM Winner” for the month of October, benchmarked against the MSCI World Free index. PPM is the Swedish platform for long term savers to self-select funds as part of the country’s pension system.

However, FI said today that: “Management company Lannebo Fonder AB has demonstrated deficient internal governance and control in that its central control functions have not been independent of the operations they were to control. As a result, the management company has repeatedly invested its funds’ assets in a manner that is in breach of both statutory provisions and fund rules.”

“The deficiencies are material and the company is therefore receiving a remark and an administrative fine of SEK10m [€1.1m].”

Lannebo replied in a statement that the deficiencies identified by the regulator relate to activities between 2008-10, and that they have been fully rectified since then.

“For our part it is also important to note that the identified deficiencies have in no way affected shareholders or other interested parties, either financially or any other way,” Lannebo said.

Lannebo suggests that one of the reasons behind the issues identified by the regulator may be its growth rate as a business. Over the period under investigation – 23 July 2008 to 30 June 2011 – managed assets grew from SEK9.3bn (€1bn) to SEK39.1bn (€4.3bn) and staff doubled to 24. It adds that it did work to meet risk and regulatory requirements during the period, but that it maybe that this work did not meet the expectations of the regulator.

However, it also questions the interpretation of the regulator on the issue of funds’ mandates and risk diversification involving the so-called 5-40 rule. Lannebo said the interpretation “impairs the opportunities for us as an active manager, and we intend to pursue the matter because it is of great importance for the entire funds industry.”

Lannebo added that it has undergone a restructuring in the past year involving a large number of new hires to strengthen its organsation, leaving it well positioned compared to other financial institutions on issues of legal and regulatory statutes.
“The criticism that has today been directed at the company is therefore of a historical nature, and we can note that we have handled FI’s views through the measures we have already taken.”

Today FI also fined Case Asset Management SEK2.5m (€0.27m) over its failure to manage possible conflicts of interest that occured when its own funds invested in “closely related companies” and even in “a number of prohibited assets”.

Marginalen Bank Bankaktiebolag was fined SEK20m (€2.2m) for improperly extending credit to companies with close ties to senior management. The company had previously been warned about this, leading FI to impose the hefty fine.

Kredit AB Marginalen was fined SEK5m (€0.55m) because it extended credit to companies with close ties to its own management.

Maxima Finans & Försäkringsmäklare failed to impose proper operational oversight, particularly in areas of documentation and money laundering requirements. it was fined SEK0.4m (€44,000).

Insurer E. N. Sak Försäkring had its licence withdrawn by FI on the grounds that the business has simply failed to resolve its own uncertain financial situation. Primariy focused on selling unemployment insurance, the company has struggled with solvency and liquidity problems. The regulator stresses that the problems are not linked to the current uncertainty on financial markets, and that it has been monitoring the business for some time.



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