The FCA has taken enforcement action against two entities within The Bank of New York Mellon Group – The Bank of New York Mellon London Branch (BNYMLB) and The Bank of New York Mellon International Ltd (BNYMIL) (together ‘the Firms’) for custody failings over a period from 1 November 2007 to 12 August 2013.
It is often the case that a Final Notice reveals that it was the firm subject to the Notice, rather than the Regulator, that discovered and reported the breaches that gave rise to action by the Regulator. However in this case we are informed that all of the failings, bar one, were drawn to the Firms’ attention by the Regulator and external advisers, including Skilled Persons, rather than through the Firms’ own compliance monitoring.
In 2010 the then FSA issued a fairly scathing report on the handling of client money and assets by firms – see Regulatory Roundup 8 – which, it was hoped, would have prompted the Firms to review their custody asset compliance. The Regulator visited the Firms in the second quarter of 2012 to review their application of the banking exemption under the Client Money rules, but during the visit identified issues relating to compliance with the Custody Rules. Later that year, an on-site risk assessment visit by the Regulator identified further CASS failings. The sorry history, including the use of external regulatory advisers and a s166 Skilled Person’s report, is included in the Final Notice.
The failings include (but are not limited to): inadequate reconciliations; commingling of firm and clients’ custody assets; use of clients’ assets without express prior consent; inadequate CASS resolution packs; and failure to provide CASS-specific training to relevant employees.
Given that the BNY Mellon Group is the world’s largest global custody bank; that the custody asset balances held by BNYMLB and BNYML peaked at approximately £1.3 trillion and £239 billion respectively; and that the Firms provide custody services jointly to 6,089 UK-based clients, it is not surprising that the FCA considered the breaches ‘serious’ with the result that a financial penalty of £126m was imposed – which would have been £180m without an early stage discount.
