The Central Bank of Ireland (Central Bank) has issued the largest monetary fine to date on a Fund Service Provider in Ireland. A fine of €10,780,000 was imposed on BNY Mellon Fund Services (Ireland) DAC (BNY DAC).
Sanction
BNY DAC is the second-largest fund administrator in Ireland, with just over €1.13 trillion in assets under administration.
On 22 March 2022, the Central Bank published details of a settlement agreement it reached with BNY DAC for admitted breaches of 16 regulatory requirements, the majority of which related to outsourcing arrangements, and the notification and reporting obligations contained in the Prudential Handbook for Investment Firms; Annex II of Chapter 5 of the AIF Rulebook; and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48 (1)) (Investment Firms) Regulations 2017. The Central Bank investigation found "systemic weakness across [BNY DAC's] entire outsourcing framework".
The original fine of €15,400,000 was reduced by 30% to €10,780,000 in accordance with the Early Settlement Discount Scheme provided for in the Central Bank's Administrative Sanctions Procedure.
The fine was calculated by reference to the Central Bank's Sanctions Guidance, published in November 2019, and reflects the serious nature of the breaches. The fine is one of the largest ever issued by the Central Bank.
Lessons Learned
An aggravating factor was applied by the Central Bank and related to BNY DAC's conduct after the breaches were identified. The Central Bank referred to BNY DAC's "failure to take remedial action" as the aggravating factor which ultimately led to a higher penalty. According to the Central Bank, there was a "theme of governance and operational issues" that BNY DAC failed to address.
The Central Bank's findings reinforce the importance of early engagement with it, and taking remedial action as soon as possible after the discovery of a breach. Regulated service providers should fully co-operate with the Central Bank, ensure effective procedures are in place to minimise the likelihood of re-occurrence, and take appropriate action on accountability. Such measures may impact the level of any fine or sanction imposed by the Central Bank.
We have extensive experience advising on regulatory and enforcement matters. For a discussion or advice on this please call Lisa Carty, Hilary Rogers, Shane Kelleher or your usual William Fry contact.
Contributed by Alexandra Drummy.
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