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Financial Services Law Insights and Observations

Financial services firm fined $400 million for risk-management deficiencies

Federal Issues OCC Federal Reserve Enforcement Compliance Risk Management

Federal Issues

On October 7, the OCC and Federal Reserve Board announced enforcement actions against a financial services firm and its national bank subsidiary (bank) to resolve alleged enterprise-wide risk management, data governance, and internal controls deficiencies. According to the OCC’s announcement, the bank allegedly engaged in unsafe or unsound banking practices by failing to “establish effective risk management and data governance programs and internal controls.” While neither admitting nor denying the allegations, the bank has agreed to pay a $400 million civil money penalty. Additionally, under the terms of the OCC’s cease and desist order, the bank must implement corrective measures to improve its risk management, data governance, and internal controls. The agency’s announcement states that the order further requires the bank “to seek the OCC’s non-objection before making significant new acquisitions and reserves the OCC’s authority to implement additional business restrictions or require changes in senior management and the bank’s board should the bank not make timely, sufficient progress in complying with the order.”

In conjunction with the OCC’s action, the Fed also announced a cease and desist order against the financial services firm, which identified ongoing deficiencies with respect to areas of compliance risk management, data quality management, and internal controls. Among other things, the Fed claims the firm also failed to adequately remediate “longstanding” deficiencies identified in previously issued consent orders, including in areas such as anti-money laundering compliance. The order requires the firm to enhance firm-wide risk management and internal controls, and imposes a series of deadlines for the firm to take measures to ensure compliance with the OCC’s order, enhance its compliance risk management programs, devise a plan to hold senior management accountable, and improve data quality management.

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