JARDINE Fleming was a fund management industry founding father in Hong Kong which failed to adapt to change. The group has been fined GBP700,000 (about HK$8.44 million) by a British regulator and forced to pay up to HK$148.97 million in compensation for fund management malpractices. The malpractices involved a fund manager profiting from the late booking of securities deals to personal accounts instead of the public funds involved at Jardine Fleming. The big question now is whether Jardine Fleming's fund management side of its business will survive the onslaught of criticism and concern that has followed the revelations. If parent Robert Fleming has given a vote of no confidence by stripping Jardine Fleming of the management of a considerable body of its funds, why should anyone else give Jardine Fleming money to invest on their behalf, some might ask. Jardine Fleming is a joint venture owned equally between British merchant bank Robert Fleming and Hong Kong conglomerate and Hong, Jardine Matheson. Launched in 1970 the group forged a powerful name as a pioneer in Asia-Pacific investment. As markets around the region opened up to outside money Jardine Fleming prided itself on being one of the first, if not the first, international fund management house to get in and set up shop. The group penetrated most securities markets around the region with its three arms, investment management, securities broking and corporate finance. In Hong Kong the group was regarded as the leader among The Big Three in fund management, including Wardley Investment Services, now HSBC Asset Management, and Schroder Investment Management (Hong Kong). These three totally dominated the development and management of the retirement scheme industry during the 1980s. Jardine Fleming was seen as the most aggressive of the three, especially in its regional presence and expansion along with its drive to attract retail funds. The group built up the largest unit-holder base in the territory with the largest range of funds and the most funds under management, in terms of local money attracted in both the institutional and retail businesses. In many respects the reason the Jardine Fleming malpractices scandal is so damaging is because of the group's very aggressiveness. The group touched almost every aspect of the Hong Kong fund management's activities, from being a founder of the Investment Fund Management Association in 1985, formerly the Unit Trust Association, to chairing industry advisory bodies covering everything from regulation to marketing. For a long time, what a fund manager chose to do with funds managed on behalf of a client was something that was a matter of concern to no one except the fund manager and his employer. The client only became involved when annual or more regular assessments of the performance of the funds involved came around. Fraud and other malpractices triggered a series of regulatory tightening in the United States and Britain. In Britain the biggest wave of regulation came in after the implementation of the Financial Services Act in 1986. Another round of tightening of regulations followed the Robert Maxwell scandal when it was discovered pension funds had been misappropriated by the Maxwell group to support the group share price. Although Hong Kong saw a wave of reform in securities regulation, beginning in 1989, it did not keep pace with the level of scrutiny and regulation being demanded in other more developed jurisdictions. Jardine Fleming's apparent downfall was the very theme that was fuelling its success. Globalisation of international equity markets saw huge flows of overseas funds into the region. Jardine Fleming, being the most aggressive marketeer in the region, got a big slice of the action. Some of this money, however, retained its domicile or regulatory jurisdiction in much tougher securities watchdog regimes than Hong Kong. By all accounts the more rigorous checks in London, at Robert Fleming, of fund operation activity was going to pick up apparent wrinkles in the accounts of some of the group funds. According to the regulators who eventually got to investigate malpractice at Jardine Fleming, once problems in the group were suspected the group failed to facilitate an investigation. The group failed to remedy these problems quickly when they came to light. It appears Jardine Fleming's downfall was the lack of management determination at group headquarters in Hong Kong to ensure fund management practices, supervision, audit checks and general monitoring of staff activity was up to the very best standards in international fund management. As long as profits were being made and fund performance was great, from 1990 to 1993, not enough questions appeared to be asked about how these funds were being managed. If these questions were asked, by all accounts, they appeared to go unanswered for a long time. After 1993, when markets took a dive in 1994, it was then probably too late as the period 1993 to 1995 became the period which was subject to regulatory investigation. It ended with the territory's biggest fund management house being the subject of the biggest fine and compensation malpractice package in more than a decade of international fund management. Since the departure of the fund manager cited in the investigation, Colin Armstrong, Jardine Fleming Investment Management has announced a new head, Mark White, and introduced a package of changes to bring the group up to the best international standards.