Standard Chartered reveals details of legal and regulatory matters behind $900m provision

Maria Nikolova

The company has set aside of $900 million for potential penalties related to the US investigation relating to violation of sanctions laws and regulations, the decision notice from the FCA concerning the Group’s financial crime controls and FX investigations.

Standard Chartered PLC (LON:STAN) has earlier today published its annual financial report. The report includes details about the $900 million provision in respect of legacy financial crime control and FX trading issues.

In today’s report, the Group explains that it has made a provision of $900 million for potential penalties related to previously disclosed matters, namely, the US investigation relating to historical violation of US sanctions laws and regulations, the decision notice from the Financial Conduct Authority (FCA) concerning the Group’s historical financial crime controls and investigations relating to Forex trading issues.

With regard to legal and regulatory matters, Standard Chartered says that, in 2012, the Group reached settlements with certain US authorities regarding US sanctions compliance in the period 2001 to 2007, involving a Consent Order by the New York Department of Financial Services (NYDFS), a Cease and Desist Order by the Board of Governors of the Federal Reserve System (Fed), Deferred Prosecution Agreements (DPAs) with each of the Department of Justice (DOJ) and the New York County District Attorney’s Office (DANY) and a Settlement Agreement with the Office of Foreign Assets Control. In addition to the civil penalties amounting to $667 million, the terms of these Settlements include a number of conditions and ongoing obligations with regard to improving sanctions, Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) controls.

In December 2014, the Group announced that the DOJ, DANY and the Group had agreed to a three-year extension of the DPAs, resulting in the subsequent retention of the Monitor to evaluate and make recommendations regarding the Group’s sanctions compliance program. The DPAs (and the term of the independent monitor) have been subject to subsequent extensions and currently expire on March 31, 2019.

In August 2014, the Group announced that it had reached a final settlement with the NYDFS regarding deficiencies in the AML transaction surveillance system in its New York branch. The system, which is separate from the sanctions screening process, is one part of the Group’s overall financial crime controls and is designed to alert the Branch to unusual transaction patterns that require further investigation on a post-transaction basis.

The settlement provisions included a civil monetary penalty of $300 million; various remediation requirements and the appointment of the Monitor which eventually expired on December 31, 2018.

In November 2018, the Group announced it had agreed to engage an independent consultant selected by the NYDFS for up to one year with a possible extension for up to one additional year to provide guidance in connection with tasks necessary to complete the remediation contemplated by the 2012 and 2014 Consent Orders.

In January 2019, the Group reached a settlement with the NYDFS regarding past control failures and improper conduct related to the Group’s FX trading and sales business between 2007 and 2013. As part of this settlement the Group agreed to pay a civil monetary penalty of $40 million to the NYDFS. A provision has been made in these financial statements for the previously disclosed investigations relating to the FX trading issues including the January 2019 settlement with the NYDFS.

Finally, Standard Chartered explains that it has received a decision notice from the Regulatory Decisions Committee of the Financial Conduct Authority (FCA) relating to the previously disclosed investigation by the FCA concerning the Group’s historical financial crime control issues, and is considering its options in relation to this decision notice, including the possibility of an appeal. The decision notice imposes a penalty of £102 million (net of early settlement discount) on the Group.

This investigation had been focused on the effectiveness and governance of those historical financial crime controls from 2009 through 2014 within the correspondent banking business carried out by the Group’s London branch, particularly in relation to the business carried on with respondent banks from outside the European Economic Area, and the effectiveness and governance of those controls in one of the Group’s overseas branches and the oversight exercised at Group level over those controls.

The Group notes that the $900 million provision reflects management’s current view of the appropriate level of provision. Resolution of the US investigation and the FCA process might ultimately result in a different level of penalties.

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