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.
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The Bank of New York Mellon has been hit by a $714 million (€660 million) settlement on accusations of FX manipulation, which resulted in it defrauding government pension funds and investors for more than a decade.
The settlement is part of a broader deal which will see the bank laying off some employees and reworking its foreign exchange operations.
The settlement was struck by the US Attorney in Manhattan and the New York Attorney General and focuses on what the authorities called a ‘fraudulent business model’. The bank claimed to offer clients the best foreign exchange rates ‘free of charge’ but instead offered them lower rates and imposed ‘undisclosed fees’. BNY Mellon secured the gains from better exchange rates rather than passing the gains onto its customers.
“Bank of New York Mellon have admitted to essentially lying outright to their clients to line their own pockets. The most concerning factor is that BNY Mellon’s misconduct was outed by a whistle-blower, which begs the question, how many cases such as this happen where there is no one to lift the lid?” said Philippe Gelis, CEO and Co-Founder of Kantox, a business foreign currency exchange.
“Claims of offering the best FX market rate are ubiquitous in the sector, and so, the only way to ensure they do indeed get the best market rate, companies must benchmark their bank against the live mid-market rate. This is not just another foreign bank being fined in a foreign country by a foreign court, but a warning of malpractice that could be carried out by any bank or broker that does not display live rates transparently."
