https://ift.tt/60svy2p
Source: Central Bank of Ireland
On 22 March 2022, the Central Bank of Ireland (the Central Bank) reprimanded and fined BNY Mellon Fund Services (Ireland) DAC (BNY DAC or the Firm) €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, 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.
“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.
“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.”
BACKGROUND
BNY DAC is authorised by the Central Bank as a fund administrator pursuant to Part II of the Investment Intermediaries Act 1995. The Bank of New York Mellon Corporation, one of the top three fund administrators globally, is the ultimate parent of BNY DAC. BNY DAC is the second largest fund administrator in Ireland with just over €1.13 trillion in assets under administration.
As a fund administrator, BNY DAC’s principal activity is the provision of fund administration services, often referred to as “back office” activities, on behalf of fund managers both in Ireland and globally. These fund administration services support the day-to-day operations of investment funds. BNY DAC provides fund administration services to a variety of investment funds (some of which are domiciled in Ireland and others elsewhere around the world). Outsourcing is an integral part of BNY DAC’s operating model.
CENTRAL BANK ENGAGEMENT WITH BNY DAC
The Central Bank has engaged extensively with BNY DAC in relation to its outsourcing arrangements. This engagement has included the Central Bank issuing several Risk Mitigation Programmes (RMPs) to BNY DAC between 2014 and 2019 requiring BNY DAC to remediate issues identified in its outsourcing arrangements. Despite this repeated engagement, BNY DAC failed to address these issues, resulting in breaches which should have been remediated reoccurring and, in some instances, persisting for an extensive period of time.
Financial Services
