Big Compliance Implications in StanChart Settlement

In a new wrinkle for compliance, Britain's Standard Chartered Bank will pay $340 million to settle claims that it laundered hundreds of billions of dollars in illegal foreign transactions for Iran and other parties. The twist here revolves around who brought the case. Treasury? Nope. Fed? Uh-uh. DOJ? Try again. This settlement is with New York State Department of Financial Services, a relatively new regulator who is using what we will call "licensing-leverage" to get results from SC.

The NYDFS and its Superintendent, Benjamin Lawsky, accused Standard Chartered of scheming with Iran to launder as much as $250B. Without getting too deep into the details of U-Turns and wire stripping which you can find here, let's focus on what this means going forward and what the fallout will be.

The settlement is important in a number of ways. First, it is an example of a state regulator, using its power of oversight in the licensing area, to bypass its more powerful Federal brethren and strike its own deal with a large foreign bank. Federal regulators were incensed that Lawsky and Co. would dare to "jump the line" and forge its own settlement with SC, and the subsequent rhetoric painted the NY agency as a "rogue regulator", a "non-team player" and the reincarnation of the headline-grabbing Eliot Spitzer. Detractors also claim that despite the settlement being the largest amount ever paid to a single regulator, SC could have been separated from an even bigger amount if forced to settle with multiple regulators simultaneously.

In this case, Lawsky and NYDFS have shaken up the old order. SC offered him $5 million to settle initially, which likely was the final impetus for the state to push forward on its own, threatening to revoke the NY State banking license. SC ultimately caved, and the fine is only one of the things they agreed to do to remedy the situation.

In addition to the fine, SC agreed to give the DFS significant access to its operations to monitor for compliance. The bank will install a monitor for at least two years who will report directly to DFS, and DFS examiners will be placed directly at the bank. The bank also agreed to permanently install personnel within its NY branch to oversee and audit any offshore money-laundering due diligence and monitoring undertaken by the big bank. That, to me, is the big one. Does this lead to a whole new, high-profile AML compliance role cropping up at banks that do business in New York? Perhaps.

As Meredith Rathbone, a partner at the law firm of Steptoe & Johnson stated, the threat to pull SC's license may be viewed as much more ominous than even the biggest fines. If this licensing-leverage becomes the "new normal" in banking, then most firms would be well-served to get out in front of this by following SC's lead and hiring their own money-laundering chiefs. It just makes sense.

HBOS ex-Compliance Chief Moore Hits Back

Paul Moore, HBOS plc Head of Group Risk from 2002-2005 said he was fired for saying the bank was a threat to the financial system. In a document released today, Moore stated that HBOS was a serious risk to financial stability and consumer protection. Moore further claims his group was threatened by management for carrying out its role of complying with FSA rules. Just one more piece of evidence as to where risk and compliance has been, and where it needs to go.

Here Come the Regulators!

At GlobalRiskJobs we have long anticipated that the ultimate response to the global financial crisis is going to be much more intense regulation. Once the dust settles, the banks have been stabilized, the new administration gets its legs, etc. count on the rules of the game starting to change. Remember how Sarbanes-Oxley came about - it was a response to inadequate corporate audit procedures in the aftermath of Enron, Worldcom, Tyco, et. al. Expect something similar this time as it concerns Risk and Compliance.

Investment banks which are now partly owned by the U.S. Government must brace for regulation and risk reporting way beyond what they have experienced. And now, thanks partially to Bernie Madoff, hedge funds can likely expect similar treatment. A very good recent article in the Financial Times entitled, "Crackdown on hedge funds after Madoff affair" says funds should brace for more stringent requirements by investors and increasing regulatory scrutiny after the massive $50B Madoff fraud.

Lawsuits are being filed, due diligence procedures at funds-of-funds are being put under the microscope and Congress is on the case as well. Third party administrators and more regulation are all but a given in the new normal of high dollar asset management.

What does this mean for the risk or compliance professional? Logically, one would anticipate a slew of new opportunities as banks, I-banks and funds wake up to the new reality. In looking at SOX for precedent, think about the consulting teams that were assemble to assist in sorting out all of the new requirements. Consider the in-house teams at banks and I-banks that will be implemented to deal with the reporting they will likely face. And think of a more transparent - and more regulated - hedge fund world which will need to face scrutiny like never before, and consequently will have to appoint employees dedicated to facing that spotlight.

Massive change appears to be on the way. The only question is when it arrives. stay tuned to GlobalRiskJobs for all the opportunities and news as things progress.