Custody Bank Will Pay Over $380 Million to Settle FX Charges
A large custody bank agreed to pay over $382.4 Million to settle charges that it misled clients about markups in FX transactions executed to settle trades. The total amount includes disgorgement and penalties to the SEC, the Department of Justice, and the Department of Labor related to plan clients. The amount does not include settlements with private plaintiffs in pending securities class action lawsuits. The SEC asserts that the respondent told mutual funds and other clients that they would receive competitive market rates, consistent with best execution, on FX trades, but then “set prices driven by predetermined, uniform markups and made no effort to obtain the best possible prices for these clients.” The SEC charges violations of the Investment Company Act for delivering misleading confirmations and transaction reports.
OUR TAKE: When charging a client any fee or expense, assume that the regulators will retrospectively scrutinize the transaction. Always ensure full disclosure and consider foregoing the fee if disclosure cannot be made fully transparent.