(September 11, 2012) — The largest asset manager in the world has been slapped with a £9.5 million fine from the United Kingdom’s Financial Services Authority (FSA) for failing to adequately protect clients’ money held with third party banks.
The FSA said over a period of four years BlackRock had failed to obtain necessary documentation from banks that were holding its clients’ assets. These “trust letters” would have ensured that in the event of the asset manager slipping into insolvency, client funds would have been ring-fenced so to be easily returnable to the end investor.
The FSA notice said: “The error occurred as a result of systems changes that followed on from BlackRock group’s acquisition of BlackRock Investment Management (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. Had the firm become insolvent at any time during this period, clients would have suffered delay in securing the return of their funds and may not have recovered their money in full.”
No losses were actually made as a result of the failing and BlackRock agreed to pay the fine at an early stage in the proceedings, the FSA announced today, reducing the initial penalty of £13.6 million by 30%. BlackRock manages client assets of around $3.56 trillion.
Tracey McDermott, FSA director of enforcement and financial crime, said: “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. 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.”
The fine covered the period October 2006 to March 2010.
A statement from BlackRock clarified that it was the asset manager itself that reported the failings to the FSA and took steps to ensure it put in place “robust systems and controls relating to client money protection”, according to the FSA guidelines.
The statement continued: “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.”
Last week, the FSA launched a consultation paper on how client assets should be held and safeguarded while under the supervision of investment managers. For more information, click here.