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Bank of New York Mellon units fined $186M

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Bank of New York Mellon units fined $186M

Britain’s financial regulator on Wednesday fined Bank of New York Mellon units £126 million, or nearly $186.3 million for failing to comply with rules intended to keep client assets safe in case the bank became insolvent. The violations focus on custody banks, major institutions that hold clients securities for safekeeping in either electronic or physical form to minimize the possibility of theft of loss.635646919924746764-XXX-88373578

The bank’s London branch and Bank of New York Mellon International unity did not comply with custody rules that require firms to keep entity-specific records and accounts, the Financial Conduct Authority said. The rules are designed to help identify clients whose assets are under safeguard and are due to be returned in the event of bankruptcy, the FCA said. Instead, the bank subsidiaries used global platforms to manage clients’ safe-custody assets, a procedure that did not identify the specific Bank of New York Mellon unit customers had entrusted with their assets, the FCA said.

The violations occurred between Nov. 2007 and mid-August 2013, the regulator said. “Our custody rules are in place to ensure that clients are protected in the even of insolvency,” said Georgina Philippou, the FCA’s acting director of enforcement and market oversight. “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.”

Bank of New York Mellon said it started an internal review with aid from an independent accounting firm and external legal advisers after learning about the failures. The bank said it “remained financially robust” throughout the period covered by the violations and added that no clients suffered any losses. “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,” said the bank.

The bank’s London branch and international subsidiary agreed to a settlement at an early stage of the FCA investigation, which the regulator said resulted in a 30% reduction of the financial penalty. The Bank of New York Mellon Group is the world’s largest global custody bank by safe-custody assets. The group’s London and international subsidiaries are the United Kingdom’s third- and eighth-largest custody banks, collectively providing services to more than 6,000 clients, the FCA said. During the period of the violations, safe custody assets held by the two units peaked at roughly £1.3 trillion and £236 billion, respectively, the FCA said. The massive size of the safe-custody holdings made the subsidiaries systemically important to the United Kingdom market, the regulator said.


February 2018
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