Banking on consequences: an examination of penalties imposed on financial institutions

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As the backbone of national and global financial systems, banks are held to the highest standards of accountability, financial stability and fairness. However, the consequences can be harsh and far-reaching when these standards are not met.

From gut-punching billion dollars for financial misconduct to multi-million dollar penalties for non-compliance, the consequences of being at the wrong end of regulatory scrutiny can reverberate through the industry and beyond. In this write-up, we delve into the different types of penalties imposed on banks throughout 2022 and examine their significance in maintaining a fair and just financial system.

Penalty box: an overview of penalties imposed on banks by the watchdogs

Regulators across the globe imposed penalties on banks for various violations and non-compliance issues. The US, UK, and European watchdogs, in particular, ensured a not-so-lawless West by enforcing regulations for maintaining order and stability in the region’s financial markets. The Financial Conduct Authority (FCA), the Consumer Financial Protection Bureau (CFPB), the US Securities and Exchange Commission (SEC) and the Payment Systems Regulator (PSR) all took action against banks for issues such as anti-money laundering failures, misconduct, greenwashing, insider trading, and data security and privacy breaches.

    • The SEC imposed some of the largest fines of the year for unauthorised electronic communication, misconduct, and ESG policy violations for investment products.
    • The FCA focused on AML discrepancies and governance failures – with Santander, TSB, and Barclays being among the top banks getting penalised.
    • The PSR charged NatWest and Barclays over interchange fee discrimination and Mastercard for antitrust violations.
    • The CFPB kept an eye out for irregularities in the disbursement of pandemic-related state unemployment benefits and consumer loan violations, and didn’t hesitate to single out repeat offenders. CFPB Director’s statement –– “Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families. The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender,”––further emphasises the organisation’s efforts to ensure consumer protection.

Regulatory reckoning: the price of non-compliance in the banking industry

Banks in the US, UK, and Europe were subject to significant penalties imposed by regulatory authorities for a variety of infractions, including violations of anti-money laundering laws, employee misconduct, securities over-issuances, and business integrity violations.

    • Wells Fargo got slammed with a $3.7 billion fine for consumer loan violations, the largest fine ever doled out by the CFPB.
    • Danske Bank was the recipient of another multi-billion dollar fine ($2 billion) on the issues of conspiracy to commit bank fraud and civil securities fraud.
    • Barclays’ interchange fee discrepancies, securities over-issuances, unauthorised electronic communication, and oversight failings repeatedly brought it under the scrutiny of both the UK and US regulators.
    • While in Europe, the financial goliaths were heavily penalised for governance and misconduct failures and AML violations, in the US, they faced penalties for unethical practices, data privacy and security breaches, deficiencies in disbursements of pandemic-related state unemployment benefits, and ESG policy discrepancies related to investments.

AML violations under the microscope: regulators increasing scrutiny on money laundering violations

The penalties imposed on banks for anti-money laundering (AML) violations significantly increased in 2022. This trend was likely due to increased regulatory scrutiny and enforcement, as well as a greater awareness of the need to combat money laundering and other financial crimes.

    • Danske Bank was fined by the Danish Special Crime Unit, the US Securities and Exchange Commission, and the Central Bank of Ireland for AML violations. The FCA fined Santander $132 million for similar breaches.
    • The Dubai Financial Services Authority penalised Bank of Singapore for non-compliance with anti-money laundering regulations.
    • USAA Federal Savings Bank was fined $140 million by the Financial Crimes Enforcement Network for similar violations.
    • The National Bank of Pakistan was fined $56 million by the Federal Reserve Board, Federal Reserve Bank of New York, and the New York State Department of Financial Services for AML infractions.

Regulatory compliance: challenges and imperatives

Pecuniary penalties are intended to punish misconduct by a supervised financial institution. They serve as a deterrent to the bank concerned and also to the whole financial sector.

Banks are in a precarious situation of dealing with a trilemma of heightened regulatory scrutiny, rising customer expectations, and competitive dynamics against nimble fintechs and bigtech players. Banks need to prioritise adopting holistic and best-of-breed RegTech and RiskTech solutions to deliver on the proactive and preemptive compliance agenda and ensure customer trust and regulatory confidence.


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