The UK's Financial Conduct Authority has today fined the Bank of New York Mellon London Branch and the Bank of New York Mellon International Ltd £126 million for failing to comply with the its 'client assets sourcebook', otherwise known as CASS, which applies to safe custody assets and to client money.

The custody rules, according to the regulator, are there to protect safe custody assets if a firm becomes insolvent and to ensure those assets can be returned to clients as quickly and easily as possible. Each regulated firm is required to ensure they have adequate systems, controls and records to facilitate this.

The two banks are the third and eighth largest custody banks in the UK and between them provide custodial services to 6,089 customers in the UK. During the period of their misconduct, the safe custody asset balances they held peaked at approximately £1,536 billion all told.

Over a five-year period, the firms did not:

• conduct entity-specific external reconciliations;
• maintain an adequate CASS resolution pack (after 1 October 2012, when the requirement to do so came into force);
• submit accurate Client Money and Asset Returns (CMAR) (after October 2011, when the requirement to do so came into force);
• take the necessary steps to prevent the co-mingling of safe custody assets with "firm assets" from 13 proprietary accounts;
• use 'safe custody' assets held in omnibus accounts to settle other clients’ transactions without the express prior consent of all clients whose assets were held in those accounts; and
• make CASS-specific governance arrangements that were commensurate with the nature of the firms’ business and their failure to identify and remedy the failings that were identified.