In the UK, every firm must have a trust letter from any bank holding its client money to ensure that, in the event of the firm's insolvency, client money is clearly identifiable and is ring-fenced from the firm's own assets so that it can be promptly returned.

Between 1 October 2006 and 31 March 2010, BIM failed to obtain such letters in relation to some of the money market deposits it placed with third party banks, the FSA said in a statement today. 

The error occurred as a result of systems changes that followed on from BlackRock group's acquisition of BIM, which had previously been known as Merrill Lynch Investment Managers, the statement said. 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 might not have recovered their money in full.

The FSA said that it took into account that the misconduct was not deliberate; that the firm reported the issue to the FSA, has since remedied the situation and put in place robust systems and controls relating to client money protection. No clients suffered any losses as a result of the error, the FSA said.  

"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. This is not the first time we have seen the impact on client money overlooked as part of a re-organisation,” said Tracey McDermott, director of enforcement and financial crime.

To view a recent summary of financial sector miscreants, click here.