More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Even as London-based Standard Chartered fought back against an order from New York’s top regulator, Benjamin Lawsky, experts in the U.S. and abroad say that the bank's internal e-mails give Lawsky a basis for his unilateral action against the bank. The two sides will have a hearing Wednesday.
Bloomberg reported that an order issued Monday by Lawsky’s agency, the New York State Department of Financial Services (DFS), which threatened to revoke the bank's license, cited e-mails that appeared to indicate a pattern of deception and disregard for anti-money-laundering laws. The bank has gone on the offensive against Lawsky, complaining about the fact that he acted independently instead of in concert with other U.S. agencies currently investigating the bank. It also challenges the amount of money involved in the questionable transactions.
While Standard Chartered is making its loudest arguments over Lawsky’s action by disputing the dollar figure Lawsky cited as violating regulations—the bank says the amount is less than $14 million, while Lawsky puts the figure at $250 billion—the fact that there was an apparent coverup of any of it puts the bank’s license in jeopardy.
The DFS charter gives Lawsky the power to act on his discretion against any financial institution he finds to be untrustworthy. That includes levying fines, and even revoking the bank’s license to operate in New York—something that could deal a telling blow to its business in the international community.
According to the analyst Chirantan Barua at Sanford Bernstein Research in London, losing its New York license could cause the bank’s earnings to drop 40% and cause significant damage to its corporate banking model.
Arthur Levitt, former chairman of the SEC, was quoted saying in an interview, “I don’t care whether it is a half of 1% that weren’t right. There are going to be more that weren’t right.” Levitt added, “The e-mails are really outrageous. I think Lawsky has uncovered something that probably has a much deeper depth.”
Levitt isn’t the only one to feel that Lawsky stands on firm ground. Owen Watkins, a partner with the London law firm Lewis Silkin, said in the report, “Making and publicizing the order was within the power conferred on Mr. Lawsky by section 39 of the New York Banking Law. On the basis of the order, you can see that the superintendent has an arguable case, with the e-mails and the comments made by certain Standard Chartered staff internally.”
While London’s response to this latest blow to its banking sector has been largely to attack the regulator challenging it—Bank of England (BoE) Governor Mervyn King has jumped on Lawsky for his independent action, while Mayor Boris Johnson instead went the conspiracy theory route, saying that New York is attacking its largest business competitor as a means of defending its own financial center—others are defending Lawsky’s actions.
Another factor in the case is the 2004 agreement Standard Chartered had with New York over previous violations involving its anti-money-laundering policies and procedures. Standard Chartered signed an agreement with the New York State Banking Department and the Federal Reserve Bank of New York in which, according to the order, it pledged “to ensure compliance with all record keeping and reporting requirements.”
The agreement not only applied to money laundering, but also, from 2004 to 2007, subjected the bank to formal departmental action over regulatory compliance failures in connection with the Bank Secrecy Act and regulations of the U.S. Office of Foreign Assets Control. But in 2007, the bank provided a “watered-down” compliance report; the Banking Department was thus “misled” into lifting the restrictions, according to the order.
Lawsky’s order said the bank since 2001 had been engaged in a “deceptive business plan” that involved hiding proscribed transactions and falsifying records to keep the truth from regulators. Instead, according to the order, the bank not only had, prior to 2001, “embraced a framework for regulatory evasion,” but went after greater market share in those transactions.
The order said, in part, “Led by its most senior management, SCB designed and implemented an elaborate scheme by which to use its New York branch as a front for prohibited dealings with Iran. By definition, any banking institution that engages in such conduct is unsafe and unsound.” This behavior by a “rogue institution,” the order continued, affected the “safety and soundness” of the New York branch of the bank and cast doubt on its “character, credibility and fitness as a financial institution licensed to conduct business under the laws of this state.”
Tariq Mirza, a former Federal Deposit Insurance Corp. official now with Grant Thornton, was quoted saying, “Willful noncompliance is very serious. If those allegations can be substantiated, regulators throw the book at institutions.”