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.
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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 

 

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