BNY Mellon Fund Services (in Ireland) DAC Fined €10.78M, Reprimanded by Central Bank over Regulatory Issues

On 22 March 2022, the Central Bank of Ireland  “reprimanded” and fined BNY Mellon Fund Services (Ireland) DAC €10,780,000 pursuant to its Administrative Sanctions Procedure (the ASP) for 16 regulatory breaches “relating to the outsourcing of fund administration activities.”

The 16 breaches “arose because of BNY DAC’s failure: to have in place an adequate outsourcing governance framework; to comply with its regulatory obligations in respect of outsourcing; and to engage openly and transparently with the Central Bank once breaches of its regulatory obligations were identified.”

The duration of the breaches “ranged from 26 days to 6 years, spanning the period from July 2013 to December 2019.”

Weaknesses within BNY DAC’s outsourcing framework “were first identified by the Central Bank  of Ireland, and despite protracted intrusive supervisory engagement, BNY DAC failed to fully remediate all of the issues to the Central Bank’s satisfaction.”

This led to further breaches and extended “the duration of the breaches.”

Following the commencement of the investigation into BNY DAC’s outsourcing failings, it committed “additional breaches by providing inaccurate and misleading information to the Central Bank and by failing to report breaches as soon as it became aware of them.”

The Central Bank’s investigation “identified serious systemic breaches across BNY DAC’s outsourcing framework.”

These failings undermined BNY DAC’s ability “to effectively identify and manage the risks associated with its outsourcing arrangements; undermined the Central Bank’s ability to properly assess, monitor and supervise BNY DAC’s outsourcing of regulated activities; and created unnecessary potential risks to its clients, investors and the financial markets.”

The Central Bank has determined the appropriate fine “to be €15,400,000, which has been reduced by 30% to €10,780,000 in accordance with the settlement discount scheme provided for in the Central Bank’s ASP.”

This is “the largest monetary penalty imposed on a Fund Service Provider in Ireland to date.”

The Central Bank’s Director of Enforcement and Anti-Money Laundering, Seana Cunningham, said:

“In recent years, in recognition of the increasing reliance regulated firms have placed on outsourcing, the Central Bank has increased its focus on outsourcing, specifically the management by regulated firms of the risks associated with outsourcing, through targeted onsite inspections, wider thematic reviews and public engagement. While outsourcing can be beneficial, that is only the case where firms manage their outsourcing arrangements and associated risks correctly. If outsourcing is not effectively managed, it has the potential to cause investor detriment and threaten the operational resilience of regulated firms and the Irish financial system.”

Cunningham added:

“The investigation into BNY DAC found systemic weakness across its entire outsourcing framework. Despite intervention by the Central Bank over a number of years, BNY DAC repeatedly failed to address these deficiencies. The Central Bank expects firms to take the necessary actions to remediate weaknesses communicated to them and will hold firms fully accountable where they fail to do so.

Cunningham continued

“This investigation also found that BNY DAC failed to act with expediency, transparency and openness even once it was aware that there were further issues with its outsourcing arrangements. The Central Bank expects firms to be candid in all of their dealings with the Central Bank. This is even more important when failures have occurred. Regulated firms must have a culture, driven by their boards, which supports transparency with the regulator.”

For more details on this update, check here.

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