BNY Mellon (the “Bank”) and the SEC have settled charges related to the Bank’s handling of certain foreign currency transactions on behalf of its clients, including some registered investment companies (RICs). According to the order, the Bank misled customers about how it would execute standing instruction foreign currency transactions. The standing instruction product allowed the Bank to automatically process and execute certain FX trades without supervision or direct negotiation with clients. The SEC stated that the Bank disclosed on its website and in communications with RIC clients that it would execute these transactions according to best execution standards. However, the SEC stated these transactions were actually priced at or near the end of the trading day or session, at prices that were near the worst rates during that trading period. As a result, the SEC found that the Bank received substantial revenues based on the difference between the rates assigned to the clients and the rates actually obtained by the Bank.
The SEC also took issue with the trade confirmations and transaction reports, which listed the date of the transaction and the rate, but did not provide clients with information about the time the transactions were completed or about how the rates were assigned. The SEC found that more detailed reports would have revealed to clients that the transactions were not executed as represented by the Bank.
According to the SEC, the Bank received revenues from RIC clients of $120 million for the period from April 2008 through August 2011. The SEC ordered the Bank to pay the $120 million, plus pre-judgment interest. However, the order states that the payment can be satisfied if the Bank pays the full amount under the terms of its settlement with the Justice Department and New York Attorney General. In addition, the SEC ordered the Bank to pay a penalty of $30 million.