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BNY Mellon (BK) Fined $11.8M for Breaching Outsourcing Laws
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A unit of The Bank of New York Mellon (BK - Free Report) was charged with a record fine and a reprimand by the Central Bank of Ireland. Per a recent article by Bloomberg, the company broke rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.
BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. It was fined 10.78 million euros (approximately $11.8 million) for a total of 16 regulatory breaches. The penalty was reduced from 15.4 million euros as the company decided to settle.
The unit’s non-compliance included not obtaining approval from the central bank before starting new outsourcing arrangements. Also, it did not monitor and assess the financial performance of its service providers. BNY DAC failed to ensure that a senior staff member completed, signed and dated a review of the final net asset value prior to its release. Further, clients were not notified before outsourcing arrangement began. This put its clients, investors and the financial market into potential risk.
According to the regulators, BNY DAC also provided inaccurate information to the central bank once the investigation began. The company tried to misrepresent its outsourcing breaches to minimize the seriousness and extent of such oversight.
BNY Mellon “failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements,” said the Central Bank of Ireland’s director of enforcement, Seana Cunningham. The company repeatedly failed to address the systemic weakness in its outsourcing activities.
The company has now apologized for failing to meet the regulatory requirements of the central bank and has taken necessary steps to rectify the deficiencies that gave rise to the breaches.
While BNY Mellon's cost-control efforts and strategic acquisitions will likely support its financials in the quarters ahead, the litigation issues due to the bank’s past business misconduct are a key concern. These might induce higher legal costs in the upcoming period, eventually hurting its bottom line.
Over the past six months, BK has gained 11%, compared with the industry’s gain of 6.1%.
Several banks continue to encounter legal probes and have been charged with huge sums of money for business malpractice. In January 2022, Morgan Stanley (MS - Free Report) agreed to pay $60 million as fine to settle a lawsuit by its customers. The lawsuit alleged that the investment bank had failed twice to correctly rescind some of its outdated information technology that exposed customers’ personal data.
While Morgan Stanley agreed to resolve the case via a settlement, the investment bank reportedly denied any wrongdoing. In the settlement documents, it was added that MS made “substantial” upgrades to its data security practices.
Earlier this month, Deutsche Bank AG (DB - Free Report) agreed to prolongate the term of an existing independent compliance monitor until February 2023, after the U.S. Department of Justice (“DOJ”) prosecutors detected that the bank breached terms of a deferred prosecution agreement (“DPA”) by not timely revealing a misconduct complaint on environmental, social and governance related information in its asset-management arm, DWS.
Per a Financial Times article, Deutsche Bank had signed a DPA with the DOJ in 2021. As a part of the settlement related to the bank’s alleged manipulative commodities trading and bribery practices, DB had agreed to notify the DOJ about potential new legal issues at its earliest knowledge of the same.
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BNY Mellon (BK) Fined $11.8M for Breaching Outsourcing Laws
A unit of The Bank of New York Mellon (BK - Free Report) was charged with a record fine and a reprimand by the Central Bank of Ireland. Per a recent article by Bloomberg, the company broke rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.
BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. It was fined 10.78 million euros (approximately $11.8 million) for a total of 16 regulatory breaches. The penalty was reduced from 15.4 million euros as the company decided to settle.
The unit’s non-compliance included not obtaining approval from the central bank before starting new outsourcing arrangements. Also, it did not monitor and assess the financial performance of its service providers. BNY DAC failed to ensure that a senior staff member completed, signed and dated a review of the final net asset value prior to its release. Further, clients were not notified before outsourcing arrangement began. This put its clients, investors and the financial market into potential risk.
According to the regulators, BNY DAC also provided inaccurate information to the central bank once the investigation began. The company tried to misrepresent its outsourcing breaches to minimize the seriousness and extent of such oversight.
BNY Mellon “failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements,” said the Central Bank of Ireland’s director of enforcement, Seana Cunningham. The company repeatedly failed to address the systemic weakness in its outsourcing activities.
The company has now apologized for failing to meet the regulatory requirements of the central bank and has taken necessary steps to rectify the deficiencies that gave rise to the breaches.
While BNY Mellon's cost-control efforts and strategic acquisitions will likely support its financials in the quarters ahead, the litigation issues due to the bank’s past business misconduct are a key concern. These might induce higher legal costs in the upcoming period, eventually hurting its bottom line.
Over the past six months, BK has gained 11%, compared with the industry’s gain of 6.1%.
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Currently, BNY Mellon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Several banks continue to encounter legal probes and have been charged with huge sums of money for business malpractice. In January 2022, Morgan Stanley (MS - Free Report) agreed to pay $60 million as fine to settle a lawsuit by its customers. The lawsuit alleged that the investment bank had failed twice to correctly rescind some of its outdated information technology that exposed customers’ personal data.
While Morgan Stanley agreed to resolve the case via a settlement, the investment bank reportedly denied any wrongdoing. In the settlement documents, it was added that MS made “substantial” upgrades to its data security practices.
Earlier this month, Deutsche Bank AG (DB - Free Report) agreed to prolongate the term of an existing independent compliance monitor until February 2023, after the U.S. Department of Justice (“DOJ”) prosecutors detected that the bank breached terms of a deferred prosecution agreement (“DPA”) by not timely revealing a misconduct complaint on environmental, social and governance related information in its asset-management arm, DWS.
Per a Financial Times article, Deutsche Bank had signed a DPA with the DOJ in 2021. As a part of the settlement related to the bank’s alleged manipulative commodities trading and bribery practices, DB had agreed to notify the DOJ about potential new legal issues at its earliest knowledge of the same.