Cross border insolvencies and financial restructurings are remarkably opaque considering we live in the Information Age. The mission of the Centre of Main Interest (the COMI) is to light some candles in the darkness and create a forum for further discussion. The Law Offices of Tally M. Wiener, Esq. are pleased to publish the COMI blog.
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Saturday, August 18, 2012
Standard Chartered Faces a New Normal in New York
Per the Wall Street Journal:
August 15, 2012, 1:21 PM GMT By Marietta Cauchi
The $340 million fine dished out to Standard Chartered as part of its money-laundering settlement with New York regulators may be the least draconian part of the penalty package.
Standard Chartered must now get back to “business as normal” at its New York offices. Just how “normal” it will be is questionable.
Examiners from the regulator–the New York Department of Financial Services–will be installed on site, as will an outside monitor, to be hired by the bank. These compliance focused micromanagers will assess the money-laundering risk controls in StanChart’s New York branch, advise on the implementation of “corrective measures” and report back to the DFS for a full two years.
In addition, Standard Chartered has agreed to appoint its own auditors in its New York office to oversee compliance with U.S. money-laundering laws.
The presence of so many watchdogs means not only that StanChart’s New York office will feel pretty crowded, but also that its day-to-day activities will likely be hampered.
A spokesman for the bank said it has no idea how intrusive the installation of monitors might be because the final details have yet to be hammered out.
The policy of installing permanent on-site monitors is a key difference between the U.S. and the U.K. and highlights the more hands-on approach traditionally adopted by U.S. regulators. In the U.K., the Financial Services Authority limits itself to requiring a financial institution to appoint an external monitor–usually one of the big four accountancy firms–to provide information on past conduct or to monitor business on a forward-looking basis as part of an ongoing investigation.
Meanwhile analysts said that while the fine appeared disproportionate to the “ostensibly narrow breach” and in relation to previous penalties applied to non-U.S. banks, they didn’t expect it to affect the bank’s capital position. Even if further fines are imposed by Federal regulators, the damage isn’t likely to exceed $1 billion, they say.
Further, Standard Chartered has minimized any reputational damage by dealing with the issue swiftly.
“We would expect the other regulators to settle in due course, and the fines may be material, but we think the aggregate cost will be below $1 billion and will not require the company to issue any additional equity,” said Credit Suisse analyst Amit Goel. “For Standard Chartered it has been impressive how rapidly they have been able to reach an initial resolution to this situation,” Mr. Goel added.
Crucially, the deal–monitors and all–eliminates the risk of Standard Chartered losing its banking and clearing license in New York which would have substantially damaged its operations.
“We believe the penalty is a small price to pay,” said Espirito Santo analyst Shailesh Raikundlia. “In particular losing their banking license in New York would have significantly impaired their wholesale banking operations, especially transaction banking and trade finance, where most of the transactions are processed in U.S. dollars,” Mr. Raikundlia said.