The Financial Conduct Authority (FCA) has fined The Bank of New York Mellon London Branch and The Bank of New York Mellon International Limited £126 million (€175 million) for failing to comply with the FCA Client Assets Sourcebook (Custody Rules, or CASS), which applies to safe custody assets and to client money.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said: “Our Custody Rules are in place to ensure that clients are protected in the event of insolvency. 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.”
The failings occurred between 1 November 2007 and 12 August 2013
The Bank of New York Mellon Group is the world’s largest global custody bank by safe custody assets. The Bank of New York Mellon London Branch and The Bank of New York Mellon International Limited are the third and eighth largest custody banks in the UK respectively and provide custody services jointly to 6,089 UK-based clients. During the period of their breaches, the safe custody asset balances they held peaked at approximately £1.3 trillion (€1.8 trillion) and £236 billion (€328 billion) respectively.
The FCA also found a number of other failings by the firms including:
- failing to take the necessary steps to prevent the commingling of safe custody assets with firm assets from 13 proprietary accounts;
- on occasion using safe custody assets held in omnibus accounts to settle other clients’ transactions without the express prior consent of all clients whose assets were held in those accounts; and
- failing to implement CASS-specific governance arrangements that were sufficient given the nature of their business and their failure to identify and remedy the failings identified.