The Central Bank of Ireland said it has fined BNY Mellon Fund Services (Ireland) DAC €10.8 million and reprimanded the firm for 16 regulatory breaches between 2013 and 2019 relating to the outsourcing of fund administration activities.
BNY DAC is the second largest fund administrator in Ireland with just over €1.13 trillion in assets under administration.
This is the largest monetary penalty imposed on a fund service provider in Ireland to date.
“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,” said the Central Bank of Ireland.
“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 of Ireland’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.”