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TEXT-Fitch: anti-money laundering scrutiny rises for U.S. banks
July 24, 2012 / 3:00 PM / in 5 years

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
All opinions expressed are those of Fitch Ratings.

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