BANK REGULATORY – Standard Chartered Bank and the New York State Bank regulator

CNBC has reported that Standard Chartered Bank, New York Branch is questioning the action of the New York banking regulator in its article at http://www.cnbc.com/id/48560543

This is an interesting case where the regulators allege that Standard Chartered engaged in 60,000 secret transactions with Iranian counterparts worth $250 B over nearly a decade.  The conduct allegedly included among other things: falsifying business records, offering false instruments for filing and obstructing governmental administration.  [please see the Order pursuant to Banking Law 39 – http://www.dfs.ny.gov/banking/ea120806.pdf ]   The Order concludes with this comment: “Motivated by greed, SCB acted for at least ten years without any regard for the legal, reputational and national security consequences of its flagrantly deceptive actions”. (see page 22)

While the Bank had been in discussions with the state bank regulators about this matter, they released this order and thus the investigation became public on Monday.  The effect was a swift pruning of about 24% off the stock price.  It is reported that the Bank is scrambling to defend its reputation as the state’s bank regulator, Benjamin Lawsky, called Standard Chartered a “rogue institution”. 

This case points out the importance of managing regulatory investigations and being sensitive to how a regulator is reacting to the developing discussions with an institution.  Reputational risk is more important than ever.  Clearly Standard Chartered may not have grasped its bank regulator’s potential reaction to the unfolding situation and the potentially devastating effect of that reaction.  Once a regulator puts strong comments about an institution in the marketplace, an institution can find it extremely uncomfortable to defend itself in the public eye.  This is made even more difficult when the allegations involve dealings with countries on the sanctioned list.  Obviously the allegations have yet to be proven but let’s keep an eye on how Standard Chartered shapes its defence both before the Superintendent and the public. 

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