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Industry news

State Street Bank to pay settlement charges related to custody


28 June 2019 Washington DC
Reporter: Jenna Lomax

Generic business image for news article
Image: Shutterstock
State Street Bank and Trust has agreed to pay over $88 million to settle charges for overcharging mutual funds and other registered investment company clients for expenses related to the firm's custody of client assets.

Without admitting or denying the Â鶹´«Ã½ and Exchange Commission’s (SEC) findings, State Street agreed to cease and desist from committing or causing any future violations of these provisions, to pay disgorgement and prejudgment interest of $48.78 million, which State Street has been returning directly to the affected registered investment companies, and to pay a civil penalty of $40 million.

According to the SEC, from 1998 to 2015, State Street collected $170 million from the overcharges, with $110 million coming from the hidden SWIFT markup charged to thousands of its registered investment company clients.

Instead of charging clients for the actual amount of the expenses, however, the SEC order finds that State Street routinely overbilled its clients.

State Street has been and undertakes to continue reimbursing overcharges, with interest, to affected clients.

State Street's clients also agreed to pay the firm back for out-of-pocket custodial expenses that the firm paid on the clients' behalf.

The SEC's order finds that State Street violated Section 34(b) of the Investment Company Act of 1940 and caused violations of Section 31(a) of the Investment Company Act and Rules 31a-1(a) and 31a-1(b).

Paul Levenson, director of the SEC's Boston regional office, said: "For years, State Street sent clients a bill for expense reimbursement, without disclosing that State Street had added extra compensation for itself–compensation that clients had not agreed to pay.â€

He added: "Fund expenses make a big difference to mutual fund investors and advisers, they have a right to receive honest information about what they’re paying for."
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