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IPE special report May 2018

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Watchdog fines BlackRock £9.5m for failing to ring-fence client funds

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  • Watchdog fines BlackRock £9.5m for failing to ring-fence client funds

UK - BlackRock Investment Management (UK) has been fined more than £9.5m (€11.2m) by the Financial Services Authority (FSA) for failing to protect client assets for investments made in money market deposits between 2006 and 2010.

In a statement, the UK financial watchdog concluded that BlackRock IM failed to put trust letters in place for certain money market deposits or to take reasonable care to organise and control its affairs responsibly in relation to the identification and protection of client money.

The FSA insisted that any firm investing in money market deposits must have a trust letter from any bank holding to ensure that, in the event of the firm's insolvency, client money is clearly identifiable and ring-fenced from the firm's own assets so it can be promptly returned.

The UK regulator claimed that, between October 2006 and March 2010, BlackRock IM failed to obtain such letters in relation to some of the money market deposits it placed with third-party banks.

According to the FSA, the issue arose as BlackRock acquired BIM - which was previously known as Merrill Lynch Investment Managers.

The acquisition rendered BIM's procedures for setting up trust letters "ineffective", the FSA went on to say before arguing that if BlackRock had become insolvent between 2006 and 2010, clients would have suffered delay in securing the return of their funds and might not have recovered their money in full.

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."

BlackRock IM told IPE its clients had suffered no losses in the matter, and that the situation that led to the settlement had not been deliberate.

A spokeswoman said: "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."

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