After settling a series of lawsuits for $714 million regarding allegations that it overcharged pension funds and other clients for FX services, Bank of New York Mellon Corp (NYSE:BK) will pay an additional $30 million penalty after US regulator the Securities and Exchange Commission (SEC) found more than a decade of violations in its foreign exchange business.
According to the SEC, from 2000 to 2011 BNY Mellon misled and overcharged some clients in what it calls its Standing Instructions program. Under the program, the bank offered to automatically process and execute client FX trades without supervision or direct involvement from clients. As expected, the bank promised to execute these trades according to best execution standards and at the best rates.
Instead, according to the SEC, BNY Mellon used the program as an opportunity to earn more on each transaction by executing the trades at the highest reported interbank rate for the day if the client was buying the foreign currency, and at the lowest if the client was selling currency – that is, the worst price as far as the client was concerned. The bank would then send the summary of transactions to clients including the date of each transaction and the rate assigned by the bank, while leaving out the transaction timestamp and the how the specific rate was assigned.
According to the SEC, BNY Mellon’s Standing Instruction service was bank’s most profitable FX product as its sales margins were generally ‘substantially’ higher than on client negotiated FX transactions in the same currencies.
According to BNY Mellon spokesperson Colleen Anne Krieger,
We are pleased to put these legacy FX matters behind us, which was in the best interest of our company and our constituents.