(September 12, 2013) — Florida’s pension system will be renewing its contract with BNY Mellon, despite a state lawsuit alleging that the custody bank overcharged for foreign exchange transactions.
An evaluation team at the Florida State Board of Administration (SBA) yesterday recommended that the Executive Director and CIO Ash Williams begin negotiations with the custody bank.
John Kuczwanski, the fund's communications manager, told aiCIO that the SBA waiting for Williams’ decision, but he expects the deal to move forward in the coming week.
The SBA’s decision to entrust its $166 billion in assets to BNY Mellon is somewhat controversial. Florida Attorney General Pam Bondi had filed a civil lawsuit against the bank in 2011, accusing it of overcharging on foreign exchange (FX) trades.
“BNY Mellon added hidden spreads, including mark-ups and mark-downs, to these foreign exchange trades rather than pricing the trades at the exchange rates at which it actually executed the transactions," the complaint alleged, causing the pension "to pay far more than it should have for buys and receiver much less than it should have for sells.”
Over the past two years, many states including New York, California, Virginia, Ohio, and Massachusetts have filed lawsuits against BNY Mellon and other custody banks over similar allegations.
The bank’s FX scandal, however, may not impact the upcoming deal with Florida.
“The lawsuit is through the attorney general,” Kuczwanski said. “We have no comment.”
Ross McLellan, founder of transaction cost consultancy Harbor Analytics, also suggested these lawsuits could take years to actually affect the relationships between funds and custody banks.
"Funds don't want to change custodians," McLellan told aiCIO in July. "It is a lot of work, and people perceive that there won't be a huge upgrade between different providers. A lot of the current contracts are probably very old."
The Florida SBA selected BNY Mellon over JP Morgan Chase and State Street. The bank will be responsible for maintaining the assets of the fifth largest public retirement plan in the US. It will also settle trades and collect income and dividends from investments.
The SBA’s other primary funds include Florida Retirement System Investment Plan, Florida PRIME, Florida Hurricane Catastrophe Fund, and Lawton Chiles Endowment Fund.
The new contract is expected to last for five years.
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