Martin Currie Investment Management has been fined £3.5m by the Financial Services Authority for failing to manage conflicts of interest.

The FSA ruled that the fund management company had failed to manage a conflict of interest between two of its clients.

The firm was also fined £5.1m by the Securities and Exchange Commission in America.

The failures arose when one client invested £15m into an unlisted bond issued by an offshore Chinese firm. The firm failed to scrutinise the bond and it halved in value over the following two years.

A second client had serious liquidity problems due to exposure to illiquid investments in a single offshore Chinese entity. These problems were solved when almost half of the first client’s investment was used to repay these illiquid investments.

This also helped Martin Currie avoid any reputational damage.

The FSA ruled that Martin Currie was slow to identify and manage the conflict of interest and did not disclose to the first client that the proceeds would be used to repay an investment made by another.

Tracey McDermott, acting director of enforcement and financial crime, said: “Effective identification and management of potential conflicts of interest between clients is a core requirement for asset managers.

“It is no excuse that some of Martin Currie’s failings resulted from the actions of individual fund managers.

“The primary responsibility for ensuring compliance with a firm’s regulatory obligations rests with the firm, and senior management must ensure there are adequate systems and controls in place to manage conflicts and to oversee the actions of employees.”

Willie Watt, chief executive of Martin Currie, said: “Following our comprehensive review, significant improvements have been made to our business including reinforcements to our governance function, changes to our management team and closing the unit down.

“It is good to reach the end of the regulatory process and put this behind us allowing the business to move forward.”

Martin Currie agreed to settle early entitling it to a 30 per cent discount on the fine. The FSA also recognised that Martin Currie had brought the issue to the FSA’s attention, compensated the first client for its investment losses and spent time and money investigating the issue.