State Street has agreed to pay over $88 million to US regulators to settle charges for overcharging clients through ‘secret markups’ tacked on to the cost of SWIFT messaging.

According to the Securities and Exchange Commission (SEC), mutual funds and other registered investment companies were overcharged $170 million from 1998 to 2015 with $110 million coming from the hidden SWIFT markup.

As described in the order, State Street's clients agreed to pay the firm back for out-of-pocket custodial expenses that the firm paid on the clients' behalf.

Instead of charging clients for the actual amount of the expenses however, the SEC order found that State Street routinely overbilled its clients.

"For years, State Street sent clients a bill for expense reimbursement, without disclosing that State Street had added extra compensation for itself – compensation that clients had not agreed to pay," said Paul G. Levenson, director of the SEC's Boston Regional Office.

"Fund expenses make a big difference to mutual fund investors and advisers; they have a right to receive honest information about what they’re paying for."

The settlement adds to a growing list of State Street’s regulatory enforcements from overcharging in recent years.

In 2015, State Street admitted it had overcharged asset servicing clients through incorrect invoicing, and in 2017 it was found that the custodian had overcharged for services in its retirement services business.

In 2017, State Street agreed to pay $64 million to US authorities to resolve an investigation that it had deliberately overcharged six European clients for transition management services. It also paid a £22.9 million fine to the UK Financial Conduct Authority (FCA) in 2014 for the same offence.

In a statement, State Street said: "We regret these invoicing errors and the impact on our clients. We have compensated the affected clients with interest, and we have and continue to invest significant resources to improve and strengthen our invoicing processes, controls, and governance. The costs associated with this settlement are within our previously established reserve. We have not resolved at this time inquiries by all governmental authorities."

Without admitting or denying the SEC's findings, State Street agreed to cease and desist from committing or causing any future violations of these provisions.

State Street will pay $48.78 million directly to the affected registered investment companies, and a civil penalty of $40 million.

The SEC added that the order recognises that State Street self-reported its conduct to the Commission and that it provided substantial cooperation to the Commission staff during the investigation.