178 Billion in Fines
2014 has set a record for fines. According to an article in the Bank Rate 2014 has been the most expensive year on records for fines levied against banks and financial instructions around the globe. Some of the standouts are BNP Paribas for willfully violating sanctions and laundering money for Sudan and Iran, Bank of America’s sale of mortgages backed securities, six banks fined for rigging foreign exchange rates and it goes on and on.
As the consummate consumer of this information and reading through many of the reports from FINRA, SEC, UK FSA and the ECB a few common themes have occurred.
- The banks are finding problems with their clients but are not taking action. The compliance department actually raises the issue and senior management is more interested in profits brought by the non-complaint activity than in profits through compliance. These begat the largest fines.
- Senior management fails to budget for the sufficient talent, time, and treasury for the job to be done correctly. These typically go through a warning process before a fine is levied. So even warned they fail at the task of compliance.
- Good people assume other people are good and do not spend enough time screening new clients. It is our experience that over 85% of all compliance problems can be stopped during client on boarding.
- Compliance people work the checks list and go home. They are not allowed to raise questions beyond the checks lists. Compliance is relegated to a burden, a grudge buy, a noisy dog that should heel to management’s commands and stop barking at the intruders.
- Some financial institutions had resorted to the “Full Metal Jacket” approach to reporting everything they do not understand. This is a Big Red light for the regulators and they know your KYC is deficient.
- Many senior managers just view these fines as a “Spank Tax” a cost of doing business and have begun budgeting for the fines.
- Lastly, as the gains – management has taken bonuses and salary – and the losses socialized – e.g. the shareholders were stuck with the loss of value, nothing is going to change in 2015.
What we have been told by the regulators is that after BNP Paribas that the regulators will not only look to fine, but look for persons to charge with felonies. The examples of “To Big To Jail”, “Tour De Fraud”, “Gangster Bankers” and more banks being found guilty, but not the bankers, is going to end in 2015.
It is an embarrassment that the US DOJ has sent housewives and plumbers to jail for bank fraud, but the entire raft of fraud feasing and sanctions busting bankers – have some sort of Teflon coating.