BlackRock Investment Management has been fined £9.5 million for failing to protect its clients' money properly.
The Financial Services Authority slapped the fine on the investment giant after it left more than £1.36 billion of customers' money unprotected every day from October 2006 to March 2010.
Had BlackRock become insolvent at any time during that period, clients would have suffered a delay in retrieving their money, and they may not have recovered all of their money.
The error occurred as a result of system changes that followed on from BlackRock's takeover of BIM (previously known as Merrill Lynch Investment Managers).
Tracey McDermott, the FSA
's director of enforcement and financial crime, comments: "Identifying and protecting client money should be at the top of every firm's agenda. 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."
Specifically BlackRock failed to put trust letters in place for money market deposits.
Under FSA rules, firms must have trust letters from any bank holding its client money to ensure that, in the event of the firm's insolvency
, client money is identifiable and ring-fenced from the firm's own assets so that it can be promptly returned.
"This is not the first time we have seen the impact on client money overlooked as part of a re-organisation," says McDermott.
"The fine imposed should remind all firms of the critical importance we place on ensuring proper protection of client money at all times."
In determining the penalty the FSA took into account that the misconduct was not deliberate, and that the firm reported the issue to the FSA and has since remedied the situation.
No clients suffered any losses as a result of the error.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.