Imro, the investment managers' watchdog, slapped the fine on AUTM for breaking six rules protecting customers from sloppy administration. More than 7,000 people were affected, 10 per cent of customers.
The watchdog found AUTM was late in getting cheques banked on time. It failed to carry out proper checks on a bank account meant for distributing money to holders of personal equity plans (PEPs). At one stage it let the account go pounds 70,000 overdrawn.
AUTM created the wrong number of units in some of its unit trusts because it calculated the number of units bought on the wrong day, opening itself up to errors due to changes in share price. It also failed to execute customers' orders on time and lacked a proper mechanism for dealing with customer complaints. AUTM was also late in sending customers their money when they sold units.
The blunders took place in the back office of AUTM, which is owned by Lloyds TSB, in the 18 months between December 1995 and July 1997.
After offering a string of discounts on its unit trusts and PEPs, the company saw business mushroom. In early 1996, it grew to four times its normal level. But managers failed to identify basic failings in administration until late in the day.
A spokeswoman for AUTM said: "The situation was that whilst the management team were experienced they didn't have sufficient specialist PEP knowledge. Senior management were asking questions and the answer came back that they were coping."
The fine points to a worrying looseness of internal controls in administration of investment managers which can cost substantial sums.