According to the FSA, Transact had breached the Client Asset Sourcebook rules, such as the client money arrangements, the processes used to record and manage the money held for clients.

According to the FSA’s client money rules, firms are required to keep client money separate from the firm’s money in client bank accounts with trust status, and a daily client money calculation has to be performed to check that the amount in the client bank accounts matches the firms’ records.

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In May 2010, the FSA found that the firm had failed to comply with client money rules between 1 December 2001 and 30 June 2010. The amount of client money held by Integrated Financial during the period averaged GBP508 million.

The FSA also said that Transact did not perform any client money calculations between 2001 and 2010 and consequently failed to identify any shortfalls in its client money bank accounts.

This resulted in the money belonging to one client being used to cross fund other clients, thereby risking clients’ money should Transact have faced insolvent.

Transact also failed to put in place adequate trust documentation for three of its 28 client bank accounts, which also put client money at risk in the event of the firm’s insolvency.

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Tracey McDermott, acting director of enforcement and financial crime for the FSA said, "Integrated Financial has committed a serious breach by failing to comply with our client money rules for a significant period of time. The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected."

A discount of 30% was made by the FSA as Transact agreed to an early settlement. Without the settlement discount, the fine would have been GBP5 million.