The two companies failed to comply with the FCA’s custody rules, which ensure safe custody assets and client money can be returned to clients in the event of an insolvency.
The regulator’s custody rules require firms to keep entity-specific records and accounts, which in the event of an insolvency are used to identify clients whose assets are safeguarded and due to be returned.
The two firms failed to meet these rules on the £1.56trn combined balance of safe custody assets they held during the period of their breaches, despite this asset level rendering them “systemically important” to the UK market.
They also failed 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’ transaction without the express prior consent of all clients whose assets were held in those accounts; and
- failing to implement governance arrangement that were sufficient given the nature of the firms’ business and their failure to identify and remedy the failings identified.
“Particularly serious”
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: “The firms’ failure to comply with our rules was particularly serious given the systemically important nature of the firms and the fact that safeguarding assets is core to their business.”
She said that if the firms had become insolvent, the total value of safe custody assets at risk would have been significantly high, compounded by the fact that the breaches took place at a time when there was considerable stress in the market.
She added: “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 clients’ 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.”
“Regretted its failures”
In reaction, BNY Mellon said it regretted its failures but was working to improve its procedures. It also said the fine would be fully covered by its legal reserves and no clients suffered any loss as a result of the issues.
The bank also highlighted that the penalty was discounted by the FCA in recognition of its cooperative efforts to resolve the matter at an early stage.
A BNY Mellon spokesperson said: “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.
“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.”
