Investment firm fined €10,780,000 for regulatory violations related to fund administration outsourcing

On March 24, 2022, the Central Bank of Ireland (Central Bank) announced that it imposed a reprimand and fine against investment firm BNY Mellon Fund Services (Ireland) DAC in the amount of €10,780,000 for 16 regulatory breaches related to the outsourcing of fund administration activities between July 2013 and December 2019.  According to the Central Bank, the fine was imposed on March 22, 2022 pursuant to its Administrative Sanctions Procedure (ASP) in order to hold BNY DAC accountable for its repeated failure to act with “expediency, transparency and openness” after a Central Bank investigation identified systemic weaknesses that existed across its outsourcing framework. BNY DAC’s fine is reportedly the largest monetary penalty ever imposed upon a Fund Service Provider in Ireland – a fine that was even larger until the Central Bank reduced the amount by 30 percent in accordance with the settlement discount scheme provided for in the ASP.  

The Central Bank reports that the BNY DAC admitted to 16 breaches of regulatory requirements contained in the Prudential Handbook for Investment Firms; Annex II of Chapter 5 of the AIF Rulebook; and Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 – breaches that range in duration from 26 days to 6 years. While a majority of the breaches involved BNY DAC’s failure to implement an adequate outsourcing governance program and comply with related regulatory obligations, the Central Bank later discovered after its investigation was complete that BNY DAC had provided it with inaccurate and misleading information in an effort to minimize the seriousness and the extent of the breaches it reported.  
 
According to Seana Cunningham, the Central Bank’s Director of Enforcement and Anti-Money Laundering, outsourcing is beneficial as long as firms properly manage these arrangements and their associated risks, and are transparent with regulators especially when failures have occurred.  Cunningham explained that the Central Bank has increased its focus on outsourcing because "if [it] 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."

Central Bank of Ireland Press Release

 
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