BlackRock failed to put trust letters in place to ring-fence certain client’s money from its own assets, which would assure client money was returned promptly in the event of its insolvency.
Last week the FSA issued a combined consultation paper and discussion paper on the subject of client money and custody assets and proposed what is referred to as a radical change to the current regime for investment firms.
BlackRock’s breaches of the regulator’s client money rules occurred between 1 October 2006 and 31 March 2010 when BlackRock Investment Management failed to obtain such letters in relation to some of the money market deposits it placed with third party banks.
The FSA said the error occurred as a result of systems changes that followed on from BlackRock group’s acquisition of BlackRock Investment Management, which had previously been known as Merrill Lynch Investment Managers.
On average, the daily balance affected by BlackRock’s failure was over £1.36bn, according to the City watchdog, and if the firm had gone insolvent during this time clients may have faced a delay in getting their money back and might not have recovered it in full.
Tracey McDermott, FSA director of enforcement and financial crime, said: “Identifying and protecting client money should be at the top of every firm’s agenda. We have repeatedly emphasised to firms that their systems and controls for ensuring this is the case must be robust and well designed and updated as circumstances change.”
BlackRock’s fine was reduced by 30% because it agreed to settle with the FSA at an early stage, in determining the penalty the FSA also took into account the misconduct was not deliberate and that the firm reported the issue to the regulator itself.
BlackRock has since remedied the situation and put in place robust systems and controls relating to client money protection, the FSA added.
A spokesperson for BlackRock, said: "As the FSA itself noted, the situation that led to this settlement was not deliberate and no clients suffered any losses as a result of the error.
"Still, we regret this instance where our UK procedures regarding money market deposits for a number of our clients were not consistent with applicable standards, and we are pleased to have fully resolved this matter with the FSA and that the matter is now closed.”
