TEXT-Fitch: anti-money laundering scrutiny rises for U.S. banks
July 24 - In the wake of last week's Senate subcommittee hearings on alleged lapses in anti-money laundering (AML) compliance at HSBC, Fitch Ratings expects many U.S. banks to face significant new regulatory scrutiny over efforts to prevent money laundering. HSBC and U.S. bank regulators were questioned by the subcommittee over what investigators identified as lax oversight in monitoring money transfers from Mexico that may have originated from drug transactions and other illegal activities. Other U.S. banks, including Citibank, have recently been forced by regulators in the U.S. and overseas to comply more closely with anti-money laundering statutes. The Bank Secrecy Act (BSA) requires financial institutions to assist U.S. government agencies in the detection and prevention of money laundering. Old National Bank, an Indiana-based lender, disclosed on July 20 that it entered into a stipulation to a consent order issued by the Office of the Comptroller of the Currency (OCC) over the need to step up compliance with AML regulations under the BSA. ONB will be required to implement a program to identify BSA risks, focusing on the need to improve risk management processes in obtaining and analyzing customer due diligence information. We expect the OCC and potentially other regulatory bodies to increase the visibility of BSA regulatory oversight as a result of the HSBC investigation. Other U.S. banks face heightened scrutiny of their AML/BSA compliance functions to identify customers that may be involved in money laundering. The high profile nature of the AML investigations, involving not only Congress, but also the Justice and Treasury Departments, may ultimately result in fines levied against some banks. We expect most U.S. banks to evaluate their AML/BSA compliance efforts, and we expect it to push regulatory costs even higher. We note that these costs are significant, but manageable for large banks like HSBC. Compliance costs can be larger on a size-adjusted basis, and potentially material from a credit quality perspective for some smaller banks. We expect that these and other regulatory costs, particularly those associated with the growing burden of Dodd-Frank Act rules and international capital and liquidity regulations, will continue to weigh on overall bank profitability over the near to intermediate term. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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