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Published 28 May 2015
Over the course of two days on 14 and 15 April 2015, the UK's financial regulator announced it had issued a total of over £145 million in fines against two banks. Although the failings identified by the FCA in respect of each bank are not related, both decisions demonstrate that the FCA will not tolerate culpable conduct and that it is very serious in its mission to act as an effective deterrent in its role as financial services watchdog. Both decisions are discussed below.
The FCA issued a fine of £20.7m against Clydesdale Bank PLC ("Clydesdale") for failings in relating to selling payment protection insurance (PPI). This amount took into account a 30% discount applied following Clydesdale's agreement to settle the proceedings at an early stage.
The size of the fine in this case reflected the seriousness of the conduct, which resulted in around 42,200 customers' PPI complaints being rejected unfairly, and up to 50,900 upheld complaints which may have resulted in inadequate redress for customers. As a result, Clydesdale failed to treat its customers fairly, conduct which the FCA found to be unacceptable and well below the standard that should be expected.
A particularly aggravating factor was the provision of false information by the Bank to the Financial Ombudsman Service in response to requests for evidence of the records Clydesdale held on PPI policies sold to individual customers. Clydesdale admitted that Members of the bank's PPI's complaints handling team altered certain system print outs in some cases 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. The FCA accepted that the bank's senior management were not aware of these actions.
This is not the first time Clydesdale Bank has received a hefty sanction from the FCA, this decision follows the £8.9m fine received by the bank in 2013 for failures in relation to the treatment of its mortgage customers following its own repayment miscalculations.
The Bank of New York Mellon London Branch, and Bank of New York Mellon International Limited, together "NYMellon branches", were fined £126 million for failing to comply with the FCA Client Assets Sourcebook (Custody Rules). The Custody Rules 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. Again, the fine was reduced by 30% to reflect NYMellon's early settlement with the FCA.
The FCA noted that the NYMellon branches had systematic importance to the UK market, being the third and eighth largest custody banks in the UK respectively and providing custody services jointly to 6,089 UK-based clients. During the period of their breaches, the safe custody asset balances held by them peaked at approximately £1.3 trillion and £236 billion respectively.
The size of the fine reflected the value of safe custody assets held, as well as: (i) the seriousness of the failings, which the FCA found amounted to a failure by the NYMellon branches to consider properly the interests of their clients; and (ii) the fact that these failings were not identified by the firms' own compliance monitoring. Indeed, the NYMellon branches' failings only came to light after the FCA's specialist client assets supervisors identified the majority of them as part of their regular review of such firms.
The FCA is clear in its intention that the size of this fine serve as a deterrent to others, Georgina Philippou, Acting Director of Enforcement and Market Oversight at the FCA, warns: "Other firms with responsibility for client assets should take this as a further warning that there is no excuse for failing to safeguard client assets and to ensure their own processes comply with our rules. Client assets protection continues to be a priority for the FCA and firms who hold client assets should review their processes in line with these findings to ensure full compliance with the Custody Rules.”
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