In today’s announcement, the UK watchdog has made publicly aware that it has levied a staggering £126 million fine on BNY Mellon bank branches. Reportedly, these two firms did not comply with rules of FCA on safeguarding custody assets along with client money.
The two accused firms are the branches of the BNY Mellon Group: the Bank of New York Mellon London Branch together with the Bank of New York Mellon International Limited. Explanatory the BNY Mellon Group is one world’s biggest safe custody assets bank. The accused two branches serves approximately to 6,089 clients in the UK, more interesting is that both branches held around £1.5 trillion in safe custody assets balances within the period of breaching the regulations. Hence, these firms are essential to the UK market.
Reportedly, the two firms of BNY Mellon have failed to comply with FCA’s CASS regulations, hence being fined a hefty sum of £126 million combined. These set of rules are in place in order to safeguard custody assets, in case a firm become bankrupt. Resultantly, the aim of these regulations is to ensure that clients are eligible to get their money as convenient as possible, in the event of insolvency. Logically, every FCA regulated firm needs to have their systems in place, in order to facilitate accordingly when necessary.
In further clarification the acting director of Enforcement and Market Oversight at FCA, Georgina Philippou explains the effect the potential result if the CASS is not in implemented properly: “Our Custody Rules are in place to ensure that clients are protected in the event of insolvency. 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.”
Shooting through the industry as a warning message, the FCA hopes that other firms are aware of the case and fully comply with their CASS regulations. The penalties levied to the BNY Mellon Firms were derived through: accumulating the safe custody assets of both firms, alongside the “seriousness of the failings”.
More specifically, the two penalized firms were not using the exact platform that has been urged by the regulator. Instead the BNY Mellon firms utilized a global platform to manage their clients’ safe custody assets, which happened to be not accurate enough. According to the FCA, the firms did not meet the obligations that are listed here (Source: FCA release):
- Conduct entity-specific external reconciliations;
- Maintenance of adequate CASS resolution pack (from 1 October 2012 when the requirement was put to force); and
- Submit accurate Client Money and Asset Returns (CMAR) (from October 2011 when the requirement to do was put to force).
After further investigation the FCA also identified a number of other shortcomings by the firms, as derived from the original release:
- Failing 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’ transactions without the express prior consent of all clients whose assets were held in those accounts; and
- failing to implement CASS-specific governance arrangements that were sufficient given the nature of the Firms’ business and their failure to identify and remedy the failings identified.