Jan 26, 2012
Custodian fee backlash prompts Mercer FX monitor launch
Consulting firm Mercer
has launched a foreign exchange monitoring service for investors to keep an eye
on their custodian’s fees,
following a spate of lawsuits brought against the world’s largest banks for
alleged fraudulent overcharging on these transactions by pension funds and other large investors.
“Historically
we have helped clients look at their FX transactions but it has so far been
on a fairly generic level and for a limited client base,” Ben Gunnee,
European director of Mercer Sentinel, told aiCIO. “Recent events have
shone a spotlight on the sector and in the current economic environment clients
want more efficiency and are examining their costs more closely.”
This month
BNY Mellon said it had
finalised the partial settlement of a suit filed by federal
prosecutors in relation to this sector of its work. The suit against the
bank alleged that it fraudulently overcharged clients for currency trades with
the lawsuit aiming to resolve the way BNY Mellon discloses the pricing of those
transactions.
A year ago,
the US Securities and Exchange Commission investigated claims made by the
Attorney General of California that State Street had systemically overcharged
two of the country’s largest pension plans. Other states then began to
investigate whether they had also been
overcharged.
“We have built a sophisticated proprietary FX tool that goes into
greater depth than before," said Gunnee. "It collects data, including future and forward
prices, from the external markets and the custodians themselves to monitor
whether our clients are being overcharged. The system
adapts to the size and conditions of the market and sets thresholds where we
think charges should be which allows clients to have the discussion with their
providers."
Smaller
companies already offer this service, including Amaces and Thomas Murray.
Mercer’s standalone service will be available to investors around the globe.
The system accesses
data through the client’s relationship with the custodian, but is not yet fool
proof.
“Not all
custodians currently timestamp their trades, which means we have to look at the
day range, but transparency is improving, especially as there is more focus on
the sector,” said Gunnee.
Reporting
by Elizabeth Pfeuti, European editor, aiCIO, an Asset International publication