The UK unit of BlackRock Investment Management has been penalised by Financial Services Authority (FSA) with £9.5 million for failing to safeguard clients’ money over a period of three and a half years.
FSA investigation found that BlackRock had consistently failed to put trust letters in place for certain money market deposits that it placed with some third party banks and failed to take reasonable care to organise and control its affairs responsibility in relation to the identification and protection of client money.
The fault occurred when the then Merrill Lynch Investment Managers was acquired by BlackRock Group, which is now BlackRock Investment Management. The structural changes turned BlackRock’s procedures for setting up trust letters redundant and the average daily balance effected by this failure was over £1.36 billion, the firm failed to identify the absence of the letters for nearly three and a half years.
The fault has been viewed seriously by FSA as BlackRock is considered to be one of the largest asset managers in the world, with over £3.5 trillion of assets under management. BlackRock had failed to rectify the breaches after Dear compliance officer’ and ‘Dear CEO’ letters on client money in 2009 and 2010.
The FSA opined that if the firm had gone insolvent during this period, clients would have suffered delay in securing refunds and may not have been able to fully recover their money.
The regulator designs client money rules to protect client money in the event of insolvency, and the current rules state that a firm must have a trust letter so that in the event of its insolvency the money is clearly identifiable and is protected from the firm’s own assets.