UK regulator fines Bank of New York Mellon £126 mn
16 April 2015
Britain's financial regulator Financial Conduct Authority (FCA) yesterday imposed a £126-million ($185 million) fine on subsidiaries of the Bank of New York Mellon Group (BNYM), the world's largest custody bank, for failing to maintain the safety of client assets and money.
The penalised entities, which include the Bank of New York Mellon's London branch and the Bank of New York Mellon International Ltd have been fined for not complying with the FCA custody rules.
The FCA levies relate to the firms' breaches during the six-year period from November 2007 to August 2013.
FCA acting director of enforcement and market oversight Georgina Philippou said, ''The firms' failure to comply with our rules including their failure to adequately record, reconcile and protect safe custody assets was particularly serious given the systemically important nature of the firms and the fact that safeguarding assets is core to their business.''
The custody rules aim to protect safe custody assets if a firm goes bust and ensure quick return of the assets to clients. The firms are required to ensure they have adequate systems, controls and records to facilitate this.
The regulator said the breaches took place at a time when there was considerable stress in the market.
The size of the fine today reflects the value of safe custody assets held by the firms as well as the seriousness of the failings, it said.
During the period of their breaches, the bank's London branch had safe custody asset balance of approximately £1.3 trillion, while that of BNYM International was £236 billion.
Instead of keeping entry-specific records, the firms were accused of using global platforms to manage clients' safe assets without recording which BNYM entity clients had contracted, FCA said.
The bank avoided a full penalty of £180 million as it agreed to settle the case at an early stage that qualified for a 30-per cent discount.
New York-based BNYM is engaged in safe keeping of financial assets such as stocks and bonds for customers. The bank had assets worth $28.5 trillion as at the end of 2014. The group's London and international subsidiaries are the UK's third- and eighth-largest custody banks, collectively providing services to more than 6,000 clients.
The FCA operates independently of the UK government. Its predecessor the Financial Services Authority (FSA) tightened its grip on financial services providers in the UK, following the insolvency of Lehman Brothers in 2008 and the advent of the global financial crisis.
In a statement issued yesterday, BNYM said the fine amount is fully covered by its pre-existing legal reserves.
''BNY Mellon remained financially robust throughout the relevant period and, as indicated by the FCA in its final notice, no clients suffered any loss as a result of the issues identified,'' the statement said.
The bank said it had launched a broad internal review with the assistance of outside accountants and legal experts which led to new and improved policies and procedures to reinforce its compliance with the rules.