Fund administration firm BNY Mellon Fund Services (Ireland) has been fined €10.78m by the Central Bank of Ireland for regulatory breaches related to the outsourcing of activities.
In total the regulator found the firm had breached 16 regulations between July 2013 and December 2019, including through the provision of inaccurate and misleading information.
The duration of the breaches ranged from 26 days to up to six years.
The fine represents the largest financial penalty imposed on a fund service provider here and is among the largest ever levied by the Central Bank on any regulated entity.
The Central Bank probe found that BNY Mellon did not have in place an adequate outsourcing governance framework.
It also failed to comply with its regulatory obligations in respect of outsourcing.
The investigation also concluded that the firm did not engage openly and transparently with the regulator once breaches of its regulatory obligations were identified by the Central Bank.
"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," the Central Bank said in a statement.
"This led to further breaches and extended the duration of the breaches," the regulator said.
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"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," it added.
The Central Bank concluded that the failings it identified in BNY Mellon's outsourcing framework undermined the company's ability to effectively identify and manage the risks associated with its outsourcing arrangements.
It also found that the issues undermined the Central Bank's own ability to properly assess, monitor and supervise BNY Mellon's outsourcing of regulated activities and created unnecessary potential risks to its clients, investors and the financial markets.
"The investigation into BNY DAC found systemic weakness across its entire outsourcing framework," said the Central Bank's Director of Enforcement and Anti-Money Laundering Seana Cunningham.
"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," she stated.
Owned by the Bank of News York Mellon Corporation, BNY Mellon Fund Services (Ireland) is the second largest provider of administration or back-office services to investment funds in this country.
In total, there are currently around €1.13 trillion in assets being administered by the firm here.
The Central Bank said it has engaged extensively with the company around its outsourcing arrangements and issued a number of Risk Mitigation Programmes to it between 2014 and 2019.
These required BNY Mellon to remediate issues identified in its outsourcing arrangements but the issues were not addressed, leading to the breaches reoccurring.
"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," Ms Cunningham said.
"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," she added.
As part of its supervisory activities, the regulator has been focusing on the issue of outsourcing over recent years and has issued guidance to firms on what it requires of them.
Sources in the bank have expressed the view that there is nothing wrong with the use of outsourcing, but regulated firms using it must ensure the risks are carefully managed.
In a statement, BNY Mellon Fund Services (Ireland) said it "sincerely regrets" failing to meet its regulatory requirements and the expectations of the Central Bank in relation to the oversight of outsourced fund administration activities and related regulatory engagement.
The company said it had taken the necessary steps to rectify the deficiencies that gave rise to the breaches.
"We remain steadfastly focused on demonstrating fulfilment of our regulatory obligations and being a strong and trusted partner," it added.
