UK watchdog fines BNY Mellon $186 million
Bank of New York Mellon was fined $186 million by a British regulator for failing to keep clients’ money safe during a six-year period, the second time in a month the bank was penalized for misdeeds during the financial crisis.
The bank said no clients lost any money as a result of what the U.K. Financial Conduct Authority said was a failure to “record, reconcile and protect safe custody assets.” BNY Mellon also didn’t take the proper steps to prevent these assets from being mixed up with other accounts, the regulator said.
The penalty, issued a month after BNY Mellon settled a major fraud case with the Justice Department, underscores the increased regulatory scrutiny of large banks since the financial crisis and could hurt BNY Mellon’s reputation.
The fine, levied on BNY Mellon’s London Branch and BNY Mellon International Limited, settles an investigation into the bank’s practices between November 2007 and August 2013, Georgina Philippou, the FCA’s acting director of enforcement and market oversight, said in a statement. The world’s largest custody bank, BNY Mellon safeguards financial assets for clients, including large institutions, and Philippou said the bank’s failure to properly protect those customers posed a serious threat to the financial system.
“Had (BNY Mellon’s subsidiaries) become insolvent, the total value of safe custody assets at risk would have been significant,” Philippou said. “This is compounded by the fact that the breaches took place at a time when there was considerable stress in the market.”
The London Branch and BNY Mellon International Limited are the third and eighth largest custody banks, respectively, in the United Kingdom, according to the FCA. They provide custody services to a total of 6,089 British clients, and the balances held by those firms combined were more than $2.2 trillion during the period under investigation.
The fine from the FCA doesn’t threaten significant financial harm to BNY Mellon but highlights a serious and embarrassing issue that the bank would need to address, said Erin Davis, a senior analyst at Morningstar.
“It’s a serious neglect of their duties,” she said.
BNY Mellon said it implemented new policies and operational procedures to address the issues after conducting its own internal review. The penalty from the FCA would be fully covered by pre-existing legal reserves, the bank said.
“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,” the bank said in a statement. “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.”
The fine was levied a month after BNY Mellon said it would pay $714 million to settle a fraud case with the Justice Department and New York authorities. That case alleged that the bank overcharged pension funds and other clients in foreign currency transactions.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected].