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Anti-money laundering scrutiny rises for US banks
By Justin Fuller and Bill Warlick |
July 27, 2012, Friday
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IN the wake of last week's US Senate subcommittee hearings on alleged lapses in anti-money laundering compliance at HSBC, Fitch Ratings expects many US banks to face significant new regulatory scrutiny over efforts to prevent money laundering.
HSBC and US bank regulators were questioned by the subcommittee over what investigators identified as lax oversight in monitoring money transfers from Mexico that may have originated from drug transactions and other illegal activities. Other US banks, including Citibank, have been forced by regulators in the US and overseas to comply more closely with anti-money laundering statutes.
The Bank Secrecy Act in the US requires financial institutions to assist US government agencies in the detection and prevention of money laundering. Old National Bank, an Indiana-based lender, disclosed on July 20 that it entered into a stipulation to a consent order issued by the Office of the Comptroller of the Currency over the need to step up compliance with anti-money laundering regulations under the Bank Secrecy Act. Old National Bank will be required to implement a program to identify Bank Secrecy Act risks, focusing on the need to improve risk management processes in obtaining and analyzing customer due diligence information.
Boosting oversight
We expect the Comptroller of the Currency and potentially other regulatory bodies to increase the visibility of Bank Secrecy Act regulatory oversight as a result of the HSBC investigation. Other US banks face heightened scrutiny of their anti-money laundering/Bank Secrecy Act compliance functions to identify customers that may be involved in money laundering.
The high profile nature of the AML investigations, involving not only US Congress, but also the US Justice and Treasury Departments, may ultimately result in fines levied against some banks. We expect most US banks to evaluate their anti-money laundering/Bank Secrecy Act compliance efforts, and we expect it to push regulatory costs even higher.
We note that these costs are significant, but manageable for large banks like HSBC. Compliance costs can be larger on a size-adjusted basis, and potentially material from a credit quality perspective for some smaller banks. We expect that these and other regulatory costs, particularly those associated with the growing burden of Dodd-Frank Act rules and international capital and liquidity regulations, will continue to weigh on overall bank profitability over the near to intermediate term.
Justin Fuller is a director at Financial Institutions of Fitch Inc. Bill Warlick is a senior director at Fitch Wire of Fitch Inc. The opinions are their own.
HSBC and US bank regulators were questioned by the subcommittee over what investigators identified as lax oversight in monitoring money transfers from Mexico that may have originated from drug transactions and other illegal activities. Other US banks, including Citibank, have been forced by regulators in the US and overseas to comply more closely with anti-money laundering statutes.
The Bank Secrecy Act in the US requires financial institutions to assist US government agencies in the detection and prevention of money laundering. Old National Bank, an Indiana-based lender, disclosed on July 20 that it entered into a stipulation to a consent order issued by the Office of the Comptroller of the Currency over the need to step up compliance with anti-money laundering regulations under the Bank Secrecy Act. Old National Bank will be required to implement a program to identify Bank Secrecy Act risks, focusing on the need to improve risk management processes in obtaining and analyzing customer due diligence information.
Boosting oversight
We expect the Comptroller of the Currency and potentially other regulatory bodies to increase the visibility of Bank Secrecy Act regulatory oversight as a result of the HSBC investigation. Other US banks face heightened scrutiny of their anti-money laundering/Bank Secrecy Act compliance functions to identify customers that may be involved in money laundering.
The high profile nature of the AML investigations, involving not only US Congress, but also the US Justice and Treasury Departments, may ultimately result in fines levied against some banks. We expect most US banks to evaluate their anti-money laundering/Bank Secrecy Act compliance efforts, and we expect it to push regulatory costs even higher.
We note that these costs are significant, but manageable for large banks like HSBC. Compliance costs can be larger on a size-adjusted basis, and potentially material from a credit quality perspective for some smaller banks. We expect that these and other regulatory costs, particularly those associated with the growing burden of Dodd-Frank Act rules and international capital and liquidity regulations, will continue to weigh on overall bank profitability over the near to intermediate term.
Justin Fuller is a director at Financial Institutions of Fitch Inc. Bill Warlick is a senior director at Fitch Wire of Fitch Inc. The opinions are their own.
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