BNY Mellon fined £126m for mixing its own funds with those of its clients

One of the main factors in the collapse of Lehman Brothers at the height of the global financial crisis was the inability of regulators to untangle who owned which assets

BNY Mellon sponsored the 2015 Boat Race in April

BNY Mellon, the world’s largest global custody bank, has been fined £126m by the City watchdog for failings by its London arm to follow rules to keep clients’ money separate from its own funds.

The Financial Conduct Authority said it would have fined BNY Mellon, which sponsored last weekend’s Boat Race, £180m if it had not co-operated and agreed to settle quickly. The regulator also warned other custody banks, like BNY Mellon, that they should urgently check their own systems.

The FCA’s acting head of enforcement, Georgina Philippou, said: “The firm’s failure to comply with our rules, including its failure to adequately record, reconcile and protect safe custody assets was particularly serious given the systemically important nature of the firm and the fact that safeguarding assets is core to the business.”

Custody banks look after financial institutions’ assets and cash in return for fees. They are required under regulations to keep specific records about each client and their assets so that if the bank becomes insolvent clients’ money and assets can be returned to them quickly.

One of the main factors in the collapse of Lehman Brothers at the height of the global financial crisis in 2008 was the inability of regulators to untangle who owned which assets.

Ms Philippou said: “The size of the fine today reflects the value of safe custody assets held by the firm, as well as the seriousness of the failings and the fact that these failings were not identified by the firm’s own compliance monitoring. Other firms with responsibility for client assets should take this as a further warning that there is no excuse for failing to safeguard client assets and to ensure their own processes comply with our rules.”

Two subsidiaries of Bank of New York Mellon based in London – the Bank of New York Mellon London Branch and the Bank of New York Mellon International Limited – which have been fined handle business for more 6,000 UK-based clients.

They are the third and eighth largest custody banks operating in this country. The offences took place over a six-year period from 2007 to 2013, during which time the amount of money being looked after for clients peaked at a total of more than £1.5trn.

The fine is the largest by the FCA this year, but ranks behind the forex fines it imposed on five banks last year which were all more than £200m. The FCA said that it had found BNY Mellon had “co-mingled” client assets with its own assets and held clients’ safe custody assets in so-called “omnibus” accounts which were used to settle other clients’ transactions without their permission.

BNY Mellon said that it had already provided for the fine in previous results. It added: “Importantly, BNY Mellon remained financially robust throughout the relevant period and, as indicated by the FCA in its Final Notice, no clients suffered any loss as a result of the issues identified.”

The New York-listed bank added that it had launched an internal review of its systems led by a third-party accounting firm and external lawyers, which had come with recommendations for changes which it is now implementing.