BlackRock Fined $15 Million by U.K. FSA Over Client Money
A U.K. unit of BlackRock Inc. (BLK) was fined 9.5 million pounds ($15.2 million) for failing to properly protect client money over a three-and-a-half-year period.
BlackRock Investment Management (UK) Ltd. didn’t take reasonable care to identify and protect client money and didn’t have trust letters for some of its money-market deposits with third-party banks, the U.K. Financial Services Authority said in a statement today. The average daily balance affected was more than 1.36 billion pounds, according to the regulator.
“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,” Tracey McDermott, the head of enforcement at the FSA, said.
The errors in setting up trust letters were a result of New York-based BlackRock’s acquisition of the unit, which was previously Merrill Lynch Investment Managers Ltd., according to the FSA. BlackRock reported the failings to the regulator and received the FSA’s standard 30 percent discount for cooperating.
“The situation that led to this settlement was not deliberate and no clients suffered any losses as a result of the error,” Jonathan Mullen, a spokesman for BlackRock, said in an e-mailed statement. “Still, we regret this instance where our U.K. procedures regarding money-market deposits for a number of our clients were not consistent with applicable standards.”
The regulator said last week it is planning to require banks, brokerages and other companies to better protect clients’ funds, particularly when their investment firm fails. The plans include overhauling rules on the treatment of margin assets posted by failed companies for their derivatives trades and amount to “the most radical change in the client-assets regime in over 20 years,” the FSA said.
The FSA plans include that an investment company could divide up its clients’ money into various ring-fenced “sub- pools,” so not all its clients would face the same losses in the event of insolvency, the regulator said.
The agency stepped up enforcement of client-money rules after the bankruptcy of Lehman Brothers Holdings Inc. in 2008. The New York-based bank’s former U.K. unit failed to segregate billions of dollars of client funds from its own accounts, leaving creditors with competing claims that resulted in years of litigation. The issue has resurfaced in the administration of MF Global Holding Ltd.’s U.K. unit.
In 2010, the FSA levied its largest fine at the time, 33.3 million pounds ($53 million), against JPMorgan Chase & Co. (JPM)’s London unit for not properly separating an average of $8.6 billion of client money over seven years. Last year, it fined Barclays Capital Securities Ltd. 1.12 million pounds for failing to put as much as 752 million pounds-a-day in client money into protected accounts.
To contact the reporter on this story: Lindsay Fortado in London at email@example.com
To contact the editor responsible for this story: Anthony Aarons at firstname.lastname@example.org