British regulator the Financial Conduct Authority has fined the Bank of New York Mellon London branch and the Bank of New York Mellon International Limited £126m (€175m) for failure to comply with custody rules in relation to safe custody assets and client money.
The custody rules require firms to keep entity-specific records and accounts. Entity-specific records and accounts are important in the event of an insolvency as they will be used by an insolvency practitioner to identify those clients whose assets are safeguarded and are due to be returned.
The fine was issued just one day after BNY Mellon’s annual general meeting, during which CEO Gerald Hassell faced challenges from activist investors, including Marcato Capital Management, for failing to comply with his targets. It also comes just one month after BNY Mellon settled a $714m (€674m) foreign exchange case with the US Department of Justice, the New York Attorney General, the US Department of Labor, the Securities and Exchange Commission and private class actions.
According to the FCA: “the firms used global platforms to manage clients’ safe custody assets, which did not record with which BNY Mellon Group entity clients had contracted”. Consequently, firms were unable to meet their other obligations under the custody rules, such as the requirements to: conduct entity-specific external reconciliations; maintain an adequate CASS resolution and to submit accurate Client Money and Asset Returns.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, 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.”
“Had the firms become insolvent, the total value of safe custody assets at risk would have been significant. This is compounded by the fact that the breaches took place at a time when there was considerable stress in the market,” she added.
The Bank of New York Mellon Group, of which the firms are a part, is the world’s largest global custody bank by safe custody assets. BNYMLB and BNYMIL are the third and eighth largest custody banks in the UK respectively and provide custody services jointly to 6,089 UK-based clients and are deemed by the regulator to be systemically important to the UK market.