The Financial Conduct Authority has fined Barclays Bank £37.7m for "failing to properly protect" £16.5bn worth of customers' assets.
The regulator added that, as a result of its "significant weaknesses" in the systems and controls in Barclays' Investment Banking Division between November 2007 and January 2012, clients risked incurring extra costs, lengthy delays or losing their assets if Barclays had become insolvent.
"Safeguarding client assets is key to maintaining market confidence if firms fail - Barclays lack of focus on the rules was unacceptable," said David Lawton, FCA director of markets.
"Our ongoing scrutiny of firms' compliance reflects the importance of the regime, which protects custody assets worth £10tn (€12.7tn, $16.4tn) held in the UK."
Tracey McDermott, FCA director of enforcement and financial crime, added: "Barclays failed to apply the lessons from our previous enforcement actions, numerous industry-wide warnings, and exposed its clients to unnecessary risk.
"All firms should be clear after Lehman that there is no excuse for failing to safeguard client assets."
This is the highest ever fine imposed by the FCA or its predecessor the Financial Services Authority for client asset breaches.
Where Did Barclays Go Wrong?
The FCA explained that Barclays did not have adequate systems in place to protect clients' cash in the event of the bank becoming insolvent.
The watchdog added Barclays failed to properly apply these rules when opening 95 custody accounts in 21 countries as well as neglecting to set up appropriate legal arrangements with these companies.
Overall, Barclays' records "did not correctly reflect which company within its Investment Banking Division was responsible for the assets in the accounts".
"These failings were compounded by flaws in account naming or incorrect data that suggested assets belonged to Barclays instead of its clients," added the FCA in a statement.
As usual, the FCA applied a 30% discount to the bank's total fine, since it agreed to settle at an early stage. Without the discount, the fine would have totalled £54m.