London firm overcharged pensions reserve fund by over €3m

OVERCHARGING:THE NATIONAL Pensions Reserve Fund was overcharged of more than €3 million by London-based financial services firm State Street Bank Europe, the report of the Comptroller and Auditor General has revealed.

The State body, which comes under the remit of the National Treasury Management Agency, discovered the overcharging offence, which took place between February and May last year, last October. It has since recouped the €3.2 million owed to it.

The NTMA learned of the incident after reading media reports of the departure of two SSBE executives in October.

State Street Bank Europe was one of two firms appointed by the NTMA, through a competitive tender process, to manage the sale of €6.8 billion of assets. SSBE managed the sale of €4.7 billion of those assets, in a service known as “transition management”. The State’s debt management agency was obliged to liquidate the assets as part of a requirement to have €10 billion available, under the terms of the IMF/EU bailout programme.

The overcharging by SSBE involved the application of unauthorised commissions of €2.6 million to the National Pension Reserve Fund (NPRF) trades, as well as profits of €600,000 earned by SSBE through the sale of the NPRF’s holding.

In a statement yesterday, the NTMA said it suspended SSBE from its transition panel when it was informed by the company that it had already reimbursed a British client, and was reviewing the NPRF deal.

“A detailed review subsequently confirmed that the NPRF had been overcharged,” the NTMA said, pointing out that the overcharging involved the application of unauthorised commissions to NPRF trades in a manner that was never visible to the NTMA or the fund’s global custodian. The incident had the effect of reducing the sale proceeds obtained by the NPRF by 0.07 per cent, it said.

The NTMA was refunded the €2.61 million it was owed for unauthorised commission in January, and a further €600,000 for the profit earned by SSBE on the sale of the holding, last month.

In the CAG report, the NTMA said it was proposing to take additional steps to mitigate risks associated with transition management, though its chief executive noted there had been “significant economic benefits to the NPRF arising from the transition manager panel”.

A spokeswoman for State Street Bank Europe said yesterday the firm had informed the Financial Services Authority of the issue in September 2011. The incident “does not reflect the high standards of control we expect”, she said.

In a statement, the NTMA said it considered its experience in relation to these transactions to be “entirely unacceptable”.