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Regulation and Compliance > Federal Regulation > SEC

BNY Mellon Investment Adviser Hit With $1.5M SEC Fine for ESG Infractions

By Melanie Waddell

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What You Need to Know

  • BNY Mellon did not always perform the ESG quality review that it disclosed using as part of its investment selection process.
  • The action involves the ESG review process for six U.S. mutual funds, none of which were part of the BNYMIA ‘Sustainable’ fund range.

The Securities and Exchange Commission on Monday charged BNY Mellon Investment Adviser Inc. for misstatements and omissions about environmental, social and governance considerations in making investment decisions for certain mutual funds that it managed.

To settle the charges, BNY Mellon Investment Adviser, which serves as the advisor for all BNY Mellon’s U.S. mutual funds, agreed to pay a $1.5 million penalty.

According to the SEC’s order, from July 2018 to September 2021, BNY Mellon Investment Adviser “represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case.”

The order finds that “numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.”

Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, said in a statement that “registered investment advisors and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, in part to meet investor demand for such strategies and investments.”

According to the SEC’s order, BNYMIA “represented to investors via mutual fund prospectuses and to those funds’ boards that its affiliated sub-adviser to the Overlay Funds implemented ESG principles by conducting proprietary ESG quality reviews as part of the Sub-Adviser’s investment research process for all investments made by the Overlay Funds.”

BNY Mellon Investment Adviser said Monday in a statement that it was “pleased to resolve this matter concerning certain statements it made about the ESG review process for six U.S. mutual funds. While none of these funds were part of the BNYMIA ‘Sustainable’ fund range, we take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring our communications to investors are precise and complete.”

BNY Mellon Investment Adviser consented to the entry of the SEC’s order finding that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8, and Section 34(b) of the Investment Company Act.

Without admitting or denying the SEC’s findings, BNY Mellon agreed to a cease-and-desist order, a censure, and to pay a $1.5 million penalty.

The SEC’s order also noted that BNY Mellon Investment Adviser “promptly undertook remedial acts and cooperated with Commission staff in its investigation.”

Adam Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit and part of the Climate and ESG Task Force, added in the statement that “investors are increasingly focused on ESG considerations when making investment decisions. As this action illustrates, the Commission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process.”

BNYMIA is a wholly owned subsidiary of The Bank of New York Mellon Corp. and part of BNY Mellon Investment Management. BNYMIA also serves as the investment adviser to two sub-funds within the firm’s international money market fund range, BNY Mellon Liquidity Funds.

Pictured: BNY Mellon building in New York. (Photo: Bloomberg)

Melanie Waddell

@Think_MelanieW

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