FCA Fines BNY Mellon $185M For Compliance Failures

FCA Fines BNY Mellon $185M For Compliance Failures

The Financial Conduct Authority, Britain’s market regulator, has fined the Bank of New York Mellon $185 million (£126 million) for failing to protect its customers’ assets. The fine is the eighth largest ever imposed by the FCA.

Breaches spanned nearly six years

The FCA has fined the bank’s London branch and its international business $185 million for failing to comply with the FCA Client Assets Sourcebook (Custody Rules, or CASS), which applies to safe custody assets and client money.

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The fine was levied for breaches that spanned nearly six years from November 2007 to August 2013. The Bank of New York Mellon is the world’s biggest custody bank, looking after financial assets such as stocks and bonds for customers. It had $28.5 trillion (£19 trillion) in assets under custody globally at the end of 2014.

Following the collapse of Lehman Brothers in 2008, U.K. regulators were prompted to ensure that custody banks like BNY Mellon were complying with safe-keeping rules as markets went into meltdowns globally. Commenting on the fine imposed by the FCA, BNY Mellon said the fine was fully covered by pre-existing legal reserves and that no clients suffered any loss as a result of the issues identified by the FCA.

BNY Mellon not met custody rules

In its press release issued Wednesday, the FCA said the Bank of New York Mellon’s firms were unable to meet their obligations under the custody rules, including conduct entity-specific external reconciliations and submitting accurate client money and asset returns from October 2011 when the requirement to do so came into force. The firms also failed to take the necessary steps to prevent the commingling of safe custody assets with firm assets from 13 proprietary accounts.

When the rule breaches occurred, the two divisions of BNY Mellon were looking after assets worth about £1.5 trillion and serving 6,089 customers in Britain. BNY Mellon avoided a £180-million fine by settling the case early.

The Bank of New York Mellon said it regretted its failure but insisted it had now improved its policies. The rules, improved after the Lehman Brothers collapse in 2008, ring fence clients’ assets if a firm becomes insolvent.

As reported by ValueWalk last month, the Bank of New York Mellon agreed to pay $714 million to settle claims that it lied to and cheated government pension funds and other investors for almost 11 years. According to the allegations, New York City pension funds and private investments were both defrauded.

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