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UPDATE 1-State Street pays $88.8 mln to settle U.S. SEC charges over hidden fund markups

Jonathan Stempel

fund markups@ (Adds details from settlement, SEC comment, prior probes, byline)

June 27 (Reuters) - State Street Corp agreed to pay $88.8 million to settle U.S. Securities and Exchange Commission charges it routinely overcharged mutual fund customers and other clients over roughly 17 years by adding hidden markup costs for back-office expenses.

The SEC said on Thursday that State Street will pay a $40 million civil fine, plus $48.8 million of disgorgement and interest.

State Street did not admit or deny wrongdoing, and was credited for disclosing its conduct and providing substantial cooperation.

The Boston-based company is one of the world's largest custodial banks, with $32.6 trillion of assets under custody and administration as of March 31. It also had $2.81 trillion of assets under management.

State Street was accused of overcharging clients by more than $170 million, beginning in 1998 and lasting into 2015, for expenses related to its custody of client assets.

Roughly 5,000 clients incurred more than $110 million of the overcharges when State Street quietly tacked on markups for sending messages through SWIFT, a secured international payments network used by banks and other financial companies, the SEC said.

"Fund expenses make a big difference to mutual fund investors and advisers," Paul Levenson, director of the SEC office in Boston, said in a statement. "They have a right to receive honest information about what they're paying for."

State Street did not immediately respond to requests for comment. It has said it began reviewing customer invoices in 2015, and has since reimbursed most customers affected by the overcharges and improved its billing processes.

Custodial banks typically provide back-office and other services that can include accounting, asset valuations, currency trading, portfolio servicing and stock lending.

State Street has faced prior accusations of overcharging. In July 2016, it agreed to pay $530 million to settle regulatory probes and private lawsuits claiming it overcharged clients on foreign currency transactions. (Reporting by Jonathan Stempel in New York; additional reporting by Nate Raymond in Boston, editing by G Crosse)