The fine was handed to the London and international branches of BNY Mellon. It agreed to settle at an early stage and therefore qualified for a 30 per cent discount, without which the fine would have been £180m.
Firms are required to keep entity-specific records and accounts, which the FCA said are important in the event of an insolvency as they will be used to identify those clients whose assets are safeguarded and due to be returned.
However, the relevant braches of the bank used global platforms to manage clients’ safe custody assets, which did not record with which of the bank’s entities client accounts were held.
The FCA also found other failings, including most notably failing to prevent commingling of safe custody assets with the firm’s own assets on 13 proprietary accounts and using safe custody assets held in ‘omnibus’ accounts to settle other client transactions without express prior consent.
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.”
Mr Philippou added that 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.
“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.”
BNY Mellon said in a statement that it has worked cooperatively with the FCA to address issues related to its custody rules compliance.
The statement said: “As part of its resolution with the FCA, BNY Mellon has agreed to pay a penalty of £126 million, including a discount which the FCA applied in recognition of the Company’s cooperative efforts to resolve the matter at an early stage.
“This amount is 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.”
ruth.gillbe@ft.com
