Top U.S. Bank Hit With AML Probe: Implications and Updates

MJP –

Internal control and criminal risk management issues have landed a large US bank in the middle of an anti-money laundering investigation.

The OCC has pursued enforcement action against Wells Fargo due to concerns over the bank’s management of financial crime risk and anti-money laundering (AML) measures.

Both Wells Fargo and other large banks may be subject to further scrutiny as a result of this revelation, which could affect their plans to boost their asset caps.

Among the many problems with Wells Fargo’s anti-money-laundering procedures that the OCC revealed on Thursday were problems with customer identification protocols, suspicious activity reporting, and customer due diligence.

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The regulatory agreement states that Wells must improve its anti-money-laundering and sanctions risk management, get the OCC’s OK for new products and services, and let them know before they expand certain services.

A number of the agreement’s obligations have already been addressed, and Wells Fargo has promised to resolve them as soon as possible.

As Piper Sandler analyst Scott Siefers pointed out, the bank has hit a roadblock in its efforts to address regulatory concerns, even though the formal action was expected.

In the aftermath of the bogus accounts crisis that rocked Wells Fargo in 2016, the bank found itself under intense scrutiny from regulators.

Although six of the nine consent orders against the bank have been overturned since Charlie Scharf took over as CEO, the current asset cap of $1.95 trillion is still in place.

The 26-page agreement, which did not include fines, mandates that Wells enhance its reporting methods and internal controls about anti-money laundering and sanctions operations.

Furthermore, the financial institution needs to strengthen its audit program and guarantee the accuracy of compliance system data.

While the general criteria may affect Wells Fargo’s future expansion plans, the specific consequences are not yet known, according to Jefferies analyst Ken Usdin.

Royal Bank of Canada analyst Gerard Cassidy thinks this enforcement action will not impede efforts to remove the asset cap because it mostly addresses prior consumer banking concerns, even though AML issues are important.

Around 10,000 people have been added to Wells Fargo’s workforce, and the bank has increased spending on risk and control operations by $2.5 billion every year since 2018.

Because of this, it seems unlikely that the new regulatory measure will significantly change total expenses.

Many other large banks’ anti-money-laundering and sanctions operations have also come under fire.

While JPMorgan Chase keeps disclosing investigations from an Indian money-laundering event in 2019, Bank of America and Citi have also recently brought attention to linked risks in their filings.

The Canadian bank TD is also facing charges of drug trafficking in connection with its American anti-money laundering program.

With the ever-changing financial landscape, the industry is on high alert because it is unclear whether other banks could face similar regulatory proceedings.