How BNY Mellon Asset Servicing Generates Revenue

BNY Mellon Asset Servicing plays a key role in the financial industry by providing institutions with the infrastructure to manage and safeguard their investments. Its services help asset managers, pension funds, insurance companies, and other institutional investors handle complex operational needs efficiently.

To generate revenue, BNY Mellon charges clients for functions that support the management, processing, and reporting of financial assets. These include safekeeping securities, facilitating transactions, maintaining records, and offering insights through data analytics.

Global Custody Functions

BNY Mellon provides global custody solutions that enable institutional investors to hold financial assets across multiple markets while ensuring compliance with local regulations. This service is essential for clients with international portfolios, as different jurisdictions have unique reporting requirements, tax structures, and settlement procedures. Acting as a custodian, BNY Mellon helps clients navigate these complexities while maintaining the security and integrity of their holdings.

A major component of global custody is asset safekeeping, which involves holding securities in either physical or electronic form. Most assets today are held in dematerialized form through central securities depositories (CSDs), reducing risks associated with physical certificates. BNY Mellon maintains relationships with CSDs worldwide, ensuring client assets are properly registered and protected against fraud, misplacement, or unauthorized transfers.

Tax reclamation services provide another revenue stream. Many countries impose withholding taxes on dividends and interest payments, but institutional investors may qualify for reduced rates under tax treaties. BNY Mellon assists clients in reclaiming excess taxes by handling documentation and liaising with tax authorities. Each jurisdiction has different filing deadlines, refund periods, and eligibility criteria, making this process complex.

Corporate actions processing is another key custody service. When companies issue dividends, conduct stock splits, or initiate mergers, custodians ensure clients receive the correct entitlements. BNY Mellon monitors corporate actions globally, notifies clients of relevant events, and executes instructions on their behalf. This service is particularly valuable for investors with large, diversified portfolios who may struggle to track corporate actions across multiple markets.

Settlement and Clearing

BNY Mellon ensures financial transactions are completed accurately and efficiently. When institutional investors buy or sell securities, trades must go through a structured process to finalize the exchange of assets and cash. This involves multiple parties, including brokers, clearinghouses, and depositories, each responsible for verifying trade details and ensuring compliance with market regulations.

Settlement services help clients reduce counterparty risk. In many markets, securities transactions follow a T+2 settlement cycle, meaning trades must be completed within two business days after execution. Delays or errors can lead to financial penalties or liquidity issues, particularly for large institutions handling high volumes of trades. BNY Mellon coordinates with clearinghouses and counterparties to ensure timely and accurate settlement.

As a clearing agent, BNY Mellon acts as an intermediary to facilitate the exchange of securities and cash between buyers and sellers. Clearing services involve reconciling trade details, netting obligations to minimize the number of transactions, and ensuring counterparties meet their financial commitments. By streamlining these processes, BNY Mellon enhances market efficiency while charging fees for its expertise and infrastructure.

Foreign exchange (FX) settlement is another key function. Institutional investors operating in multiple markets often need to convert currencies when settling cross-border trades. BNY Mellon provides FX settlement solutions that help clients manage currency risk and ensure payments are processed at competitive exchange rates. This service is particularly valuable for funds and institutions with global investment portfolios, as currency fluctuations can significantly impact overall returns.

Fund Accounting and Administration

Managing investment funds requires accurate financial reporting, regulatory compliance, and operational efficiency. BNY Mellon provides fund accounting and administration solutions that help investment managers track portfolio performance, calculate net asset values (NAVs), and meet reporting requirements. These services are especially important for mutual funds, hedge funds, and private equity firms that must ensure transparency for investors and regulators.

Fund accounting involves recording all transactions within an investment portfolio, from purchases and sales of securities to income distributions and expenses. Unlike traditional corporate accounting, which focuses on profitability, fund accounting emphasizes asset valuation and shareholder equity. BNY Mellon ensures NAV calculations are precise by reconciling portfolio holdings with market prices and factoring in accrued income, management fees, and other costs. Since NAV accuracy determines the price at which investors buy or sell fund shares, even minor discrepancies can lead to regulatory scrutiny or investor dissatisfaction.

Regulatory compliance is another major component of fund administration. Investment funds must adhere to financial reporting standards, such as U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Additionally, funds are subject to oversight by agencies like the U.S. Securities and Exchange Commission (SEC) or the European Securities and Markets Authority (ESMA). BNY Mellon assists clients in preparing audited financial statements, filing regulatory disclosures, and ensuring adherence to evolving rules, such as those under the SEC’s Investment Company Act of 1940 or the Alternative Investment Fund Managers Directive (AIFMD) in Europe.

Tax reporting is also a key aspect of fund administration. Investment funds must comply with jurisdiction-specific tax regimes, including calculating and reporting taxable income, managing withholding tax requirements, and preparing investor tax statements like Form 1099-DIV in the U.S. or UK-specific tax vouchers. With regulations such as the Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS) requiring extensive disclosure of investor holdings, fund administrators play a key role in ensuring adherence to global tax transparency initiatives.

Securities Lending Offerings

Institutional investors often seek ways to enhance portfolio returns beyond traditional asset appreciation and income generation. Securities lending provides an opportunity to achieve this by temporarily transferring securities to borrowers in exchange for collateral, typically in the form of cash or high-quality bonds. BNY Mellon facilitates these transactions by connecting asset owners with market participants, such as hedge funds and broker-dealers, who require securities for short-selling, arbitrage, or other trading strategies.

The revenue model for securities lending revolves around the reinvestment of cash collateral and fees charged to borrowers. When cash is posted as collateral, BNY Mellon manages reinvestment strategies to generate interest income, often through short-term instruments like repurchase agreements or money market funds. The spread between reinvestment earnings and the rebate paid to the borrower represents a primary source of profit. For non-cash collateral, borrowers pay lending fees based on asset availability, demand, and market conditions.

Risk management is central to securities lending, particularly concerning collateral sufficiency and counterparty exposure. BNY Mellon employs margin requirements, typically 102% to 105% of the loaned security’s market value, to mitigate potential losses from borrower default. Daily mark-to-market adjustments ensure collateral levels remain adequate, while indemnification options provide additional security against counterparty failure.

Data and Analytics Support

Institutional investors rely on data-driven insights to optimize portfolio performance, manage risk, and ensure regulatory compliance. BNY Mellon provides advanced data and analytics solutions that help clients interpret vast amounts of financial information, identify trends, and make informed investment decisions. By leveraging proprietary technology and partnerships with third-party data providers, the firm delivers customized reporting, benchmarking tools, and predictive analytics.

One revenue-generating service in this area is performance measurement and attribution analysis. Investors need to understand how different factors—such as asset allocation, security selection, and market conditions—contribute to overall returns. BNY Mellon offers detailed performance reports that break down these components, allowing clients to assess the effectiveness of their investment strategies. Additionally, risk analytics tools provide scenario modeling, stress testing, and factor-based analysis to help institutions mitigate exposure to market volatility.

Regulatory reporting and compliance monitoring are also significant aspects of data services. With increasing regulatory scrutiny, financial institutions must adhere to strict reporting requirements, such as the European Market Infrastructure Regulation (EMIR) and the U.S. Dodd-Frank Act. BNY Mellon assists clients in aggregating and validating data for submission to regulators, ensuring accuracy and adherence to disclosure mandates. Automated compliance monitoring tools help detect potential violations, such as breaches of investment guidelines or liquidity thresholds, reducing the risk of regulatory penalties.

Transfer Agency Services

Managing shareholder records and processing investor transactions are fundamental to the administration of mutual funds, exchange-traded funds (ETFs), and other pooled investment vehicles. BNY Mellon provides transfer agency services that facilitate the issuance, redemption, and transfer of fund shares while maintaining accurate ownership records.

Investor servicing is a core function within transfer agency operations. BNY Mellon handles account maintenance, transaction processing, and dividend distributions on behalf of fund managers. This includes managing subscription and redemption requests, processing corporate actions affecting fund shareholders, and ensuring investor records are updated in real time.

Regulatory compliance and reporting are also major components of transfer agency services. Investment funds must adhere to anti-money laundering (AML) and Know Your Customer (KYC) requirements, which involve verifying investor identities, monitoring transactions for suspicious activity, and reporting irregularities to regulatory authorities.