FCA fines £126 million for custody failings: FCA has fined Bank of New York Mellon London branch and Bank of New York Mellon International £126 million for failure to comply with the custody rules in the Client Assets Sourcebook (CASS). The level of the fine reflected:

  • the amount of assets the firms hold in custody;

  • the systemic importance of the firms to the UK financial markets, as they are the third and eighth largest custodians in the UK and therefore whose insolvency would have had a significant effect on the UK financial markets;

  • signs the failings were firm-wide and not allied to any particular business line, showing serious weakness in compliance with custody requirements;

  • the stresses the markets were under during the relevant period, which meant firms should have had heightened awareness of custody requirements; and

  • the fact the firms' own monitoring did not pick up the breaches, which were detected by FCA staff during regular monitoring.

FCA found breaches of CASS for a period of almost six years from implementation of the Markets in Financial Instruments Directive (MiFID) in the UK. The firms used global platforms to manage clients’ safe custody assets, which did not record with which BNY Mellon Group entity clients had contracted. CASS required entity-specific records. Among other things, failure to keep them meant the firms could not conduct entity-specific external reconciliations and, later, after the relevant requirements took effect, could not have an adequate CASS resolution pack or submit accurate Client Money and Asset Returns (CMAR). It also found other breaches, such as:

  • failure to conduct reconciliations between the firms' records and those of both affiliate and non-affiliate sub-custodians;

  • failure to take the necessary steps to prevent commingling safe custody assets with firm assets from 13 proprietary accounts;

  • using safe custody assets held in omnibus accounts to settle other clients’ transactions without the express prior consent of all relevant clients; and

  • failure to put in place adequate CASS-specific governance arrangements or to identify and remedy failings.

The firms agreed early settlement and so benefited from a 30% discount on the proposed fine of £180 million. (Source: FCA Fines £126 million for Custody Failings)

FCA publishes board meeting minutes: FCA has published the minutes from the meeting of its board which took place on 26 and 27 February. Among other things the board:

  • discussed the key trends, concerns and the regulatory response so far on the capital markets sector;

  • approved the Payment Systems Regulator (PSR) plan and budget for 2015/16 of £15.9 million;

  • heard an update on the work of the Financial Inclusion Commission;

  • agreed the Oversight Committee should review the detail of the Money Advice Service's (MAS) revised budget and provide a recommendation to the Board in March;

  • discussed the draft outline of the 2014/15 Annual Report;

  • noted the final draft of the 2015/16 business plan which had been developed from earlier drafts by grouping particular items and providing an explanation of how it is prioritising issues;

  • heard an update on the work of the PRA, especially on Solvency 2 and the Senior Managers Regime (SMR);

  • noted the feedback on the FCA consultation on proposals about the scope of application of the conduct rules and the requirements that should be placed on firms to report individual breaches;

  • discussed and noted the proposals which sought to keep the spirit and goal of the SMR rules in UK branches of overseas banks;

  • discussed and noted the proposals to publish changes to the Decision Procedure and Penalties manual on the presumption of responsibility for the SMR; and

  • approved the proposed allocation of the 2015/16 annual funding requirement across fee-blocks.

(Source: Minutes of FCA Board Meeting 25 & 26 February 2015)

FCA fines Clydesdale over PPI: FCA has fined Clydesdale Bank Plc a record £20,678,300 for serious failings in its Payment Protection Insurance (PPI) complaint handling processes between May 2011 and July 2013. FCA's reasons for imposing its largest PPI-related fine included that Clydesdale:

  • had inappropriate policies in mid-2011 which led its PPI complaints handlers to fail to take account of all relevant documents when deciding how to handle PPI complaints;

  • provided false information to FOS over the course of a year in response to requests for evidence of the records Clydesdale held on PPI policies sold to individual customers. A team within Clydesdale’s PPI complaint handling operation altered certain system print-outs to make it look as if Clydesdale held no relevant documents and deleted all PPI information from a separate print-out listing the products sold to the customer. Clydesdale’s PPI leadership team or more senior management did not know about or authorise the alterations; and

  • failed to identify cases where the PPI policy sold was unsuitable to the customer, and had deficiencies in the training and monitoring of complaint handlers.

Because of Clydesdale’s conduct, of the 126,600 PPI complaints decided between May 2011 and July 2013, up to 42,200 may have been rejected unfairly and up to 50,900 upheld complaints may have resulted in inadequate redress for customers. Clydesdale will review all PPI complaints handled before August 2014 and offer redress to any customers impacted by these failings. Clydesdale agreed to settle at an early stage of FCA’s investigation and therefore qualified for a 30% stage 1 discount. Were it not for this FCA would have imposed a financial penalty of £29,540,500. (Source: Clydesdale Bank Fined £20,678,300 for Serious Failings in PPI Complaint Handling)

FCA finalises MTF good practice guidance: FCA has published its finalised guidance on good practices for Multilateral Trading Facility (MTF) rulebooks, alongside a "dear CEO" letter to MTFs attaching it. Respondents to its consultation were supportive of the guidance, but FCA has made some changes to address points respondents raised. (Source: FCA Finalises MTF Good Practice Guidance)

FCA adds MCD FAQs: A new page on FCA's website contains a set of frequently asked questions on FCA's implementation of the Mortgage Credit Directive (MCD). (Source: FCA Adds MCD FAQs)