The Bank of New York Mellon’s (BNY Mellon) London branch and international unit have been fined £126m by UK’s Financial Conduct Authority (FCA) for failing to comply with rules which aim to protect client assets if ever the bank would become insolvent.
The breaches occurred between 1 November 2007 and 12 August 2013.
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Both the branches have been found to breach the FCA Client Assets Sourcebook (Custody Rules, or CASS), which requires firms to have adequate systems, controls and entity-specific records and accounts in place to ensure that client assets are safe during a crisis, and that those assets are returned to clients as quickly as possible.
The two firms have instead been found to use global platforms to manage clients’ safe custody assets, which failed to record with which BNY Mellon Group entity clients had contracted.
This in turn led to the firms’ failure to carry out entity-specific external reconciliations, maintain an adequate CASS resolution pack, and submit accurate client money and asset returns, as was required under the Custody rules.
According to the regulator, the firms also failed to take adequate measures to prevent the commingling of safe custody assets with firm assets from a range of accounts, and failed to meet necessary CASS-specific governance arrangements.
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By GlobalDataFCA acting director of enforcement and market oversight Georgina Philippou said, "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.
"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."
