The Bank of New York Mellon has been fined £126m by the FCA for failing to protect client money should the company become insolvent.
The FCA said both the London and international arms of BNY Mellon had failed to comply with its client assets sourcebook, which applies to safe custody assets and client money.
The firms had failed to adequately “record, reconcile and protect” safe custody assets, the FCA said. It also noted that the failings had not been identified by BNY Mellon's compliance monitoring.
Each regulated firm is required to ensure they have adequate systems, controls and records to facilitate this.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said BNY Mellon's failings were “particularly serious given the systemically important nature of the firms and the fact that safeguarding assets is core to their business”.
BNY Mellon Group, which the two firms are part of, is the world's largest global custody bank by safe custody assets. The two firms are the third and eighth largest custody banks in the UK, and serve a combined 6,089 UK-based clients.
During the period BNY Mellon London and BNY Mellon International held assets of £1.3bn and £236bn respectively
“Had the firms become insolvent, the total value of safe custody assets at risk would have been significant,” she added. “This is compounded by the fact that the breaches took place at a time when there was considerable stress in the market.”
The size of the fine reflected the value of the assets held by BNY Mellon and the seriousness of the failings.
“Other firms with responsibility for client assets should take this as a further warning that there is no excuse for failing to safeguard client assets and to ensure their own processes comply with our rules,” Phillipou said.
The FCA raised other failings 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 the Firms’ business and their failure to identify and remedy the failings identified.
The two firms settled early and therefore secured a 30 per cent discount, reducing the fine from a potential £180m.
The bank said in a statement the £126m would be "fully covered by pre-existing legal reserves".
Importantly, 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.Consistent with our commitment to being a strong and trusted partner to our clients, BNY Mellon launched a broad internal review with the assistance of an independent, third-party accounting firm and external legal advisers immediately upon learning of these issues. As a result, we have engaged in a remediation process and have taken clear steps to put in place a framework of new and improved policies and operational procedures as well as enhance our specialist resources across many functions to reinforce our compliance with CASS rules.BNY Mellon is very mindful of the importance of safeguarding client assets and has been trusted by its clients to do so for 230 years. This trust could not have been earned without robust regulatory compliance in all of our operating jurisdictions, and we regret in this case that we did not meet our standards or those of the FCA. As always, regulatory compliance remains a key area of focus as we maintain our track record of safety and soundness as a financial institution.