The US banking group has seen two of its entities fined by the UK regulator for custody rule breaches.

The UK’s financial watchdog has fined two parts of BNY Mellon a total of £126 million ($185.4 million) for not complying with official rules on custody of client money, it said today.

The fine is a blow to firms that are part of a group that is the largest custodian bank in the world.

The fine, imposed on Bank of New York Mellon London Branch (BNYMLB) and Bank of New York Mellon International Limited (BNYMIL) was for not obeying the FCA Client Assets Sourcebook (Custody Rules, or CASS), the Financial Conduct Authority said in a statement. The failings occurred between November 2007 and August 2013 – a period spanning arguably the biggest financial crisis since the 1929 Wall Street Crash and its aftermath.

The custody rules are designed to protect safe custody assets if a firm goes insolvent so that they can be returned to clients as quickly as possible. Firms must show they have adequate systems and controls in place to achieve this.

Rules require firms to keep entity-specific records and accounts. Such records are used by an insolvency practitioner to identify those clients whose assets are safeguarded and are due to be returned.
However, according to today’s statement from the FCA, the firms used global platforms to manage clients’ safe custody assets, which did not record with which BNY Mellon Group entity clients had contracted. They therefore could not meet their other obligations under the custody rules, the FCA said.

“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,” Georgina Philippou, acting director of enforcement and market oversight at the FCA, said.

The Bank of New York Mellon Group, of which the firms are a part, is the world’s largest global custody bank by safe custody assets. BNYMLB and BNYMIL are the third and eighth largest custody banks in the UK respectively and provide custody services jointly to 6,089 UK-based clients.

During the period of their breaches, the safe custody asset balances held by BNYMLB and BNYMIL peaked at approximately £1.3 trillion and £236 billion respectively. The FCA considers them to be systematically important to the UK market.