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AMF fines asset manager for undisclosed conflict of interest and inadequate CDO valuation

AMF decision (Committee of Sanctions), 25 July 2013

The Sanctions Committee of the AMF has handed down an interesting decision relating to the duties of asset managers as regards conflicts of interest and valuation of collateralised debt obligations (CDO).

Société Générale Gestion (S2G), which was born of the merger in 2010 between Société Générale Asset Management (SGAM) and Credit Agricole Asset Management (CAAM), inherited the management of a mutual fund which was partly invested in one part of the equity tranche of a CDO issued in 2002. S2G was also the collateral manager of the CDO. As such, it was committed to hold the equity tranche in custody until the CDO’s maturity in 2011. The position held by S2G in this CDO was risky and so indirectly impacted the liquidity and value of the mutual fund. This holding was thus not in the interests of the subscribers of the mutual fund.

Conflict of interests

According to the Sanctions Committee of the AMF, S2G had:

  • not complied with its information duties;
  • not acted in the exclusive interests of its subscribers; and
  • preferred instead to act in its own interests, to the prejudice of the subscribers, by not informing them of this conflicted position and by continuing to hold in custody the equity tranche of the CDO, even though it had identified the conflict of interests which resulted from its custody obligation.

Inadequate valuation

The Sanction Committee also challenged the way S2G continuously underestimated the CDO and therefore affected the interests of the mutual fund subscribers. According to the Committee, by maintaining for several months a 5% valuation of the CDO, in spite of:

  • an offer by the structure manager to purchase the equity tranche at 40% of its nominal value; and
  • the favourable trend of the emerging markets in which the underlying assets of the CDO were invested,

S2G prioritised its own profits to the prejudice of the subscribers of the fund.

By also neglecting to ascertain, through a second level control, that appropriate procedures for an independent and precise valuation were implemented, S2G violated the legal rules on asset management and valuation of financial instruments.

However, given the fact that S2G had inherited the situation as a result of the 2010 merger and given the difficult situation faced by the market at the time, the Sanctions Committee imposed a financial sanction limited to EUR 280,000.


A bank merger or takeover may result in a situation where a bank has inherited a role in a transaction that is contrary to the interests of its clients in another transaction. Such conflicts of interest need to be identified early and appropriate action taken to avoid regulatory action.

Western Europe