UK regulators have hit BlackRock Investment Management (UK) Ltd. with a fine of £9.5 million ($14.85 million) for failing in its obligations to protect client assets from the risk of its insolvency.
The UK Financial Services Authority (FSA) said Tuesday it has fined BlackRock £9,533,100 for failing to protect client money adequately by not putting trust letters in place for certain money market deposits, and for failing to take reasonable care in relation to the identification and protection of client money.
The FSA has made protecting client money in the event of firm insolvency a regulatory priority, and last week it published a paper proposing some fundamental changes to how client assets are protected.
Currently, firms are required to have a trust letter from banks that hold client money to ensure that, in the event of an insolvency, client money is clearly identifiable and is ring-fenced from the firm’s own assets. However, the FSA says that between October 2006 and March 2010, BlackRock failed to obtain these letters for some of its money market deposits.
It says the error occurred as a result of systems changes that followed BlackRock’s acquisition of Merrill Lynch Investment Managers Ltd. The average daily balance affected by this failure was over £1.36 billion, it says.
“Identifying and protecting client money should be at the top of every firm’s agenda. We have repeatedly emphasized to firms that their systems and controls for ensuring this is the case must be robust and well designed and updated as circumstances change. 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,” says Tracey McDermott, FSA director of enforcement and financial crime.
The FSA says that, in determining the penalty, it 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 and put in place robust systems and controls relating to client money protection. No clients suffered any losses, and the firm agreed to settle at an early stage. So, it qualified for a 30% discount on the financial penalty. Without the discount, the penalty would have been £13,618,800.