The Strategist

S&P calls for international cooperation in financial supervision

10/17/2018 - 14:39

European banks poorly comply with anti-laundering requirements, which could lead to a new wave of large fines and downgrades of credit institutions, as it was in 2010–2012, says a recent review by the international rating agency Standard & Poor's “Déjà Vu All Over Again: Money-Laundering And Sanctions Woes Continue To Haunt Europe's Banks”. At the same time, the agency says that there’s a solution of the problem at the international level, supporting the strengthening of European financial supervision: national regulators have already strengthened their regimes during the last financial crisis.

The year 2018 was unsuccessful for European banks as the number of new charges and suspicions of money laundering and violation of the requirements of sanctions regimes was hight. After several cases of money laundering recorded in ABLV-Bank of Latvia, Estonian Versobank and Pilatus Bank of Malta at the beginning of the year, larger financial institutions came to the attention of regulators. As an example, the agency cites the problems of the Danske Bank branch in Estonia, because of which S&P downgraded its subordinated debt rating after revising the risk assessment for Estonia and Malta.

S&P believes that the growth in the number of claims against banks results from "specific management standards and operating activities, as well as poor risk control or increased appetite for it."
Another reason is “peculiarities of regulation of the banking systems of individual countries – including quality of supervision, relations with states under sanctions, and the level of attractiveness of their tax systems”. S & P Global Ratings warns that, in contrast to one-time violations, large-scale internal control and organizational failures carry the risks of substantial fines for banks.

Since the beginning of the year, in addition to the problems of ABLV, Versobank, Pilatus Bank and the Estonian branch of Danske Bank, ING agreed to a fine of € 775 million for weakening anti-money laundering control, and Julius Baer had to investigate laundering of $ 1.2 billion occurred in Venezuela with participation of one of its bankers. All this happened against the background of ongoing long-term investigations at Standard Chattered, UBS and Societe Generale - the latter is close to concluding an agreement on a $ 1 billion fine with the US authorities for violating the sanctions regime after it recently dealt other violations.

“Such cases are not of a systemic nature, but they contrast with the general tightening of the requirements of prudential supervision over the past decade,” the agency’s review says. Given that the level of transparency is quite high in general in the region, and corruption is low, the current surge in the number of regulators ’claims to banks’ compliance with anti-laundering legislation may remind the situation of 2010–2012 and record fines, which then were imposed on European credit organizations. At the same time, the agency states that tightening supervision in individual states will not solve problems - most large credit organizations have already ceased cooperation with questionable banks and jurisdictions, and further reduction of risks requires expansion and improvement of international interaction of regulators.