Over the past few years, public investors have been keen and attentive on custodial banks’ foreign exchange practices. Public investors rely on financial institutions to uphold their fiduciary responsibilities. When investment returns were high and assets were growing, many pension funds neglected to pay much attention to custodial fees and foreign exchange costs. The global financial crisis coupled with cost pressures have opened the eyes of public pensions, sovereign wealth funds, monetary authorities, and law firms on the practices of custodial banks. Financial firms like Bank of New York Mellon and State Street have come under fire from public pension funds, endowments, and public officials regarding certain foreign exchange services and practices. In fact, in the Fall of 2009, a representative from the Alaska Permanent Fund Corporation inquired if BNY Mellon followed in similar conduct as State Street. Previously, State Street was sued by then California Attorney General Jerry Brown regarding overcharging California’s public pensions on a series of foreign exchange trades.
Foreign exchange issues with standard instruction prompted investigative action by the U.S. government and other authorities. By October 4, 2011, the New York Attorney General’s Office, the New York City Comptroller and various city pension and benefit funds filed a lawsuit against BNY Mellon. That same day the United States Department of Justice filed a civil lawsuit with charges related to mail and wire fraud alleging that they cheated clients on foreign exchange services. The civil fraud action states that the Bank of New York Mellon schemed to defraud custodial clients who used their standing instruction foreign exchange service. BNY Mellon contended that institutional investors understood the program and had the right not to participate in it. Many leading public investors do business with BNY Mellon and use their foreign exchange services, including present and past, Kuwait Investment Authority, Saudi Arabian Monetary Authority, Alaska Permanent Fund, Florida State Board of Administration, and so on.
Transparency is the enemy of financial firms and eats at their profits.
In rebuttal to the NY AG lawsuit, BNY Mellon sent out a press release stating, “Importantly, our clients and their investment managers make the decision where and how to execute foreign exchange transactions, not BNY Mellon. Our clients are smart and sophisticated institutional investors with professional investment managers who are responsible for deciding which of the numerous FX services available from BNY Mellon and other market participants they should use. If the prices we provided were not competitive, clients and their investment managers would not continue to use our services.”
What is Standing Instruction in Regards to Foreign Exchange?
Custodial banks offer “standing instruction” foreign exchange services in which the bank will automatically provide currency exchange service on as needed basis. Unlike a directly negotiated transaction, the bank unilaterally determines the price its clients receive for standing instruction transactions. According to the U.S. Department of Justice, from 2007 to 2010, the Bank of New York generated more than US$ 1.5 billion in revenues from their top 200 standing instruction clients. This business is very profitable for custodial banks compared to direct negotiated transactions. Interesting is that BNY Mellon internally knew that providing best execution and pricing transparency would dramatically reduce revenues for standing instruction transactions. The bank never provided time stamps to its clients on when the trades were executed.
Sales Margin by Year USD from BNY Mellon FX Services
|Select Public Institution||2007||2008||2009||2010||Total|
|Florida Retirement System||2,543,799||11,162,547||13,508,747||5,675,659||32,890,752|
|North Carolina State||1,991,458||4,528,278||5,019,251||4,886,609||16,425,596|
|Saudi Arabian Monetary Agency||7,474,106||5,972,295||1,501,319||14,947,720|
|Kuwait Investment Authority||2,465,689||1,082,647||597,031||4,145,367|
|Abu Dhabi Investment Authority||588,162||3,131,704||1,131,652||730,884||5,582,402|
|Alaska Permanent Fund||2,531,204||4,472,220||3,613,590||3,592,103||14,209,117|
Source: EXHIBIT A – Second Amended Complaint
Private equity firm BC Partners hired Goldman Sachs Group Inc. and JPMorgan Chase & Co. to advise on the sales of Acuris. Acuris is a collection of financial news and data sites, which includes Mergermarket, Dealreporter, and Debtwire. In 2017, BC Partners sold around a 30% stake in GIC Private Limited.
Before the rebranding to Acuris, Mergermarket was part of The Financial Times Group until 2013 when it was sold off to BC Partners.
Aflac Inc. is an American insurance company founded in 1955. The company is the biggest provider of supplemental insurance in the United States. Aflac also has major operations in Japan.
In December 2018, Japan Post Holdings (JPHLF) signaled it was spending US$ 2.64 billion for a 7-8 % stake in Aflac. The goal is that, in four years time, Aflac will become an affiliate of Japan Post. Japan Post hopes to accomplish this by becoming the largest voting shareholder of the company. The world’s 13th largest company, with 400,000 employees, Japan Post needs to expand to chase further growth, mainly because Japan Post expects the postal business to decline. Diversification is seen as the optimal route to long term stability for the holding company. Japan’s economy is worrying. Japan’s aging population means that many insurance companies are facing a shrinking customer base, Japan Post settled on a plan to expand overseas.
[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Russian Direct Investment Fund (RDIF) and the Development Agency of Serbia, also known as Razvojna agencija Srbije, reached an agreement to work together to identify attractive investment projects to strengthen bilateral economic ties and increase investment flows between Russia and Serbia. Russian capital and businesses are keen on investing in Serbia.
In addition, the two countries signed an agreement to cooperate on civil nuclear energy, according to state-owned Russian reactor builder Rosatom (Rosatom State Nuclear Energy Corporation). Rosatom continues to expand it business of nuclear cooperation deals in a wide number of countries.
3 weeks ago
Warburg Pincus Digs into Mainland Chinese Real Estate
4 weeks ago
East Timor President Vetoes Decree as Forces Wrangle over Natural Gas Fields
3 weeks ago
Michael Maduell – Bold Predictions for 2019
4 weeks ago
GIC-Backed Data Center Platform Competes in Virginia’s Data Center Alley
3 weeks ago
Saudi Real Estate Refinance Company Creates 11 Billion Riyal Sukuk Program
1 week ago
Caisse des Depots Raises Second Massive French Residential Property Fund
3 weeks ago
New World Development Company Buys FTLife from JD Group
2 weeks ago
Bridgewater Associates to Outsource Some Corporate Functions to Genpact