By Tommy Wilkes
LONDON Jan 31 Britain's financial watchdog
fined State Street UK 22.9 million pounds ($38 million) for
deliberately overcharging its clients, and said the custody bank
acted with "complete disregard" for the interests of its
The fine is one of the largest dished out by the watchdog in
recent years, and the latest where financial firms have been
found to put profit before the interest of their customers.
Between June 2010 and September 2011, State Street UK
, a unit of the world's second-largest standalone custody
bank State Street Corp, overcharged six clients a total of $20.2
million, the Financial Conduct Authority (FCA) said.
Those clients included large investment management firms and
pension funds holding the funds and savings of retail investors.
Custody banks manage cash for companies and handle back-office
processing of securities and banking transactions for fund
The FCA said the firm had developed and executed a
deliberate strategy to charge substantial mark-ups on agreed
fees. The overcharging contributed over a quarter of revenues at
the business unit responsible for the failings.
The overcharging was also concealed from clients, the FCA
said, and only came to light after one discovered the mark-ups
on certain trades that had not been agreed and notified State
"The findings we publish today are another example of a firm
that has acted with complete disregard for the interests of its
customers," Tracey McDermott, director of enforcement and
financial crime at the FCA, said.
Lloyds TSB Bank was fined 28 million pounds in
December for the way it encouraged staff to sell products that
customers did not need, while Clydesdale Bank was
charged 8.9 million pounds in September for a mix-up in the
amount it charged more than 40,000 mortgage clients.
State Street said in a statement it deeply regretted the
failings and had worked hard to enhance its controls over the
past few years. The firm also dismissed staff in 2011 who were
centrally involved in the overcharging.
"Their behavior was unacceptable and a significant departure
from the high standards of conduct and transparency that we
expect and certainly not consistent with the manner in which our
employees act on behalf of clients every day," it said.
The FCA said that when those responsible for the mark-ups
were contacted by the client, the staff claimed both to the
client and later to State Street UK's compliance department that
the charging was an inadvertent error.
They arranged for a substantial rebate to be paid but failed
to disclose the existence of further mark-ups on other trades.
State Street was given a 30 percent discount on its fine for
settling with the FCA at an early stage.