State Street Ordered to Revamp Compliance Program — 2nd Update
State Street Corp. was ordered by regulators to revamp its compliance programs after deficiencies were found related to internal controls, customer due-diligence procedures and transaction monitoring.
The Boston-based bank had warned last month that it would likely face a public enforcement action from the Federal Reserve and Massachusetts Division of Banks. The action was the second by the Fed in a week against a bank for anti- money-laundering problems. Last week, the central bank said it was requiring Discover Financial Services to make improvements to its program for detecting suspicious financial activity, faulting the firm for deficiencies across multiple legal entities.
The moves show the Fed is joining the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. in stepping up its scrutiny of banks’ anti-money-laundering programs. While regulators have examined banks’ compliance with anti-money-laundering laws for years, they have been asking banks to do more amid criticism that they didn’t do enough to stop long-standing problems at firms such as HSBC Holdings PLC, which in 2012 agreed to pay $1.9 billion to settle allegations it ignored signs of illicit activity for years.
According to the agreement, State Street will be required to submit written plans detailing how it will strengthen board oversight of its compliance program, boost its customer due-diligence procedures and ensure compliance with the Bank Secrecy Act and anti-money-laundering requirements, where deficiencies were found.
“We are committed to comprehensively addressing the regulators’ concerns and meeting our compliance obligations,” State Street said in a statement. “The deficiencies identified relate to State Street’s internal compliance programs under certain banking regulations.”
The bank will also bring on an independent firm to review account and transaction data to see if State Street properly managed suspicious activity. A spokeswoman for the bank said further regulatory action could be taken if it were to fail to address the identified concerns.
Some analysts have said they believe the hiring of an independent consultant will mean State Street will have clarity on the possibility of additional charges soon.
State Street’s results have been weighed by higher regulatory and compliance costs recently.
In April, State Street said it added a $150 million charge to its legal reserves for resolving outstanding claims related to foreign-exchange activities.
