The Financial Services Authority has fined BlackRock Investment Management (UK) Limited £9,533,100 (US$15.2 million) for failing to adequately protect its clients’ money market deposits and for failing to have controls in place to protect its money market deposits.
The FSA's client money rules stipulates that a firm must have a trust letter from any bank holding its client money to ensure that, in the event of the firm's insolvency, client money is clearly identifiable and is ring-fenced from the firm's own assets so that it can be promptly returned.
Between October 1, 2006 and March 31, 2010, BIM allegedly failed to obtain the trust letters in relation to some of the money market deposits it placed with third party banks. The error occurred as a result of systems changes that followed on from BlackRock group's acquisition of BIM, which had previously been known as Merrill Lynch Investment Managers Limited. These changes rendered BIM's procedures for setting up trust letters ineffective. The average daily balance affected by this failure was over £1.36 billion (US$2.1 billion).
However, the FSA determined that Blackrock’s misconduct was not deliberate, and that the firm reported the issue to the FSA and has since put in place robust systems and controls relating to client money protection. And, more importantly, no clients suffered any losses as a result of the error. The firm agreed to settle with the FSA at an early stage and, in doing so, qualified for a 30% discount on the financial penalty. Had it not been for the discount, the full penalty would have been £13,618,800 (US$21.7 million).
"Identifying and protecting client money should be at the top of every firm’s agenda,” stated Tracey McDermott, FSA director of enforcement and financial crime. “Despite being part of one of the largest asset managers in the world, BIM’s systems were simply not adequate, and the basic step of notifying banks that the money was held on trust for clients was not done.”