15th April 2015
The Bank of New York Mellon’s London branch and International division have been hit with a £126 million for failing to protect clients’ money properly.
The bank holds money on behalf of other companies and financial institutions to keep their clients’ funds safe in the event that they were to go bankrupt, but it has been fined for failing to keep this money properly segregated.
During the period of the breaches, BNYMLB and BNYMIL held approximately £1.3 trillion and £236 billion of client money respectively. As a result of this, the Financial Conduct Authority (FCA) says the firms are systemically important to the UK market.
The FCA fined the banks for failing to comply with its client asset custody rules (CASS), designed to protect customers’ money in the event of a banking collapse, such as that of Lehman Brothers in 2008. The rules are in place to ensure that if a firm becomes insolvent those assets can be returned to clients as quickly and easily as possible.
Georgina Philippou, acting director of enforcement and market oversight at the FCA says: “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 size of the fine today reflects the value of safe custody assets held by the firms as well as the seriousness of the failings and the fact that these failings were not identified by the firms’ own compliance monitoring.”
The BNY 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.
The custody rules require firms to keep entity-specific records and accounts, which are vital in the event of an insolvency as they will be used to identify which clients’ assets are safeguarded and are due to be returned.
Instead, the FCA firms used global platforms to which did not record with which BNY Mellon Group entity clients had contracted.
The firms agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% discount. Were it not for this discount, the financial penalty would have been £180 million.