Asset Servicing Times | Financial crisis ramifications rack up $36 billion in fines


Global financial institutions have tallied up fines of as much as $36 billion since the financial crisis, according to the software company Fenergo and its December 2019 findings on financial institutions.


Marc Murphy, CEO of Fenergo, highlighted that the rise in financial crime and increasing regulation is creating a ‘tough battleground’ for financial institutions trying to stay on top of a multitude of regulatory rules across different jurisdictions.


“We are still seeing the ramifications from the financial crisis”, Murphy said, “In today’s climate there is no other option but to leverage next generation technology to achieve a more effective and streamlined approach to regulation that allows financial institutions to approach regulatory compliance in a ‘business as usual’ manner.”


“This will leave room for more value-add tasks that will achieve competitive edge in the race to win on customer experience,” he added.


Fenergo’s report noted that the fines relating to know your customer (KYC), anti-money laundering (AML) and sanction violations have all increased by 160 percent in the 15 months since the last report in 2018.


In total, 2019 brings an additional $10 billion in fines for non-compliance with AML, KYC and sanctions regulations.


Financial institutions were fined a further $82.7 million for data privacy and the second Markets in Financial Instruments Directive (MiFID II) violations.


Additionally, amid global trade tensions, sanctions violations made up almost 40 percent of 2019 fines.


According to Fenergo, 12 of the world’s top 50 banks were fined for non-compliance with AML, KYC and sanctions violations in 2019.


By country, Switzerland was the biggest offender after a tier-one Swiss bank received the biggest single fine at $5.1 billion for AML breaches by the French Criminal Court, which
exceeded the bank’s 2018 net profit of $4.9 billion by 4 percent, Fenergo revealed.


Italian banks were the second biggest offenders in 2019, racking up almost $1.5 billion in total fines for sanctions violations and global data protection regulation breaches.


The report also identified that two thirds of all fines issued by US regulators were aimed at European financial institutions for AML breaches and sanctions violations with countries such as Iran, Cuba, North Korea, Sudan, Libya and Myanmar.


The Asia Pacific market marked 0.07 percent of the 2019 fine value, and the majority of penalties were levied by regulators for AML and KYC shortcomings in India, Chinese Taipei and Pakistan.


Fenergo noted that 2019 was the first year that punitive fines were handed out to tier-one financial institutions for MiFID II transaction reporting breaches.


Two major fines amounting to $81.5 million were issued by the UK’s Financial Conduct Authority for transaction reporting failures over a 10-year period preceding the introduction of MiFID II.


Meanwhile, the top US regulator by fines was the Department of Justice with over $1.3 billion in fines issued, which includes an enforcement action imposed on one of the world’s top 20 banks.


This incorporated a forfeiture of $717.2 million for the absence of an effective, global sanctions-compliance infrastructure and a lack of management oversight which resulted in sanctions violations.


Fenergo’s global AML manager, Rachel Woolley, commented: “The scale of financial crime continues to grow while the methods used by criminals to launder the proceeds of crime evolve.”


“Our 2019 fines analysis shows that many of the financial institutions penalised lacked appropriate systems and compliance infrastructures that are necessary to identify and address areas of high risk. Effective regulation technology is no longer a ‘nice to have’, it’s essential for the future of banking and the reduction in global financial crime,” Woolley concluded.



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