Complaints have been put forward to US courts against leading banks who have ‘overpriced’ clients in their FX transactions.
The worlds leading custodians Bank of New York and State Street have both been in the limelight in regards to the way they price their institutional clients. Florida Attorney General Pamela Jo Bondi on Thursday sued Bank of New York Mellon, accusing it of breaching its fiduciary duty by overcharging the Florida Retirement System’s $129.6 billion defined benefit plan millions of dollars for foreign exchange fees.
Ms. Bondi — also one of the three trustees of the Florida State Board of Administration, Tallahassee, which oversees the system— filed suit in Leon County Circuit Court in Tallahassee against BNY Mellon, the global master custodian for all the funds overseen by the state board. Judge Terry Lewis is presiding in the case.
The lawsuit, which does not quantify the overcharging, seeks to recover triple damages from BNY Mellon and other penalties.
“Due to BNY Mellon’s misconduct, the state will ultimately have to provide millions of additional dollars to the (Florida system),” the suit said.
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The suit alleges BNY Mellon used false prices for foreign exchange. BNY Mellon “added hidden spreads, including markups and markdowns, to these foreign exchange trades rather than pricing the trades at the exchange rates at which it actually executed the transactions,” according to the suit said.
As a result, the suit alleges, the actions cause the Florida plan “to pay far more than it should have for buys and receive much less than it should have for sells.”
The board began a search earlier this year for a global master custodian for the funds it oversees; in May, Bank of New York Mellon along with J.P. Morgan Chase and State Street Bank & Trust were named finalists.
The FSBA has not made a decision on hiring, although it is possible it could in September, said John Kuczwanski, the board’s communications manager. He said board officials have no comment on the lawsuit.
Pricing of FX instruments has been on top of regulators agenda, SEC recently filed Investor Bulletin that emphasises leverage and wants traders to make sure they know how brokers price them.