Bank Shares Fall After FinCen Leak
Financial sector stocks tumble on Monday after leaking $ 2 trillion of suspicious transaction reports backed by major banks and other financial institutions.
Financial sector stocks tumble on Monday after leaking $ 2 trillion in suspicious transaction reports backed by major banks and other financial institutions.
Documents obtained by Buzzfeed and an international consortium of investigative journalists contain Suspicious Activity Reports (SARs) filed with the US Treasury’s Financial Crimes Enforcement Division (FinCen) between 1999 and 2017.
Financial institutions are required by law to alert regulators when they detect any suspicious activity, such as money laundering or sanctions violations. However, SAR reports are not necessarily evidence of any criminal behavior..
Deutsche Bank, JPMorgan, Standard Chartered, HSBC, Barclays, BNY Mellon and Societe Generale are mentioned in the documents. Banks have reported increased spending on compliance systems in recent years and deny any deliberate violation.
Rachel Woolley, Director of Financial Crimes Fighting at consulting company Fenergo, said FinCen files disclose «systemic failure of the entire financial system and industry». She suggested that SAR is being used as «defense mechanism» to communicate information to other stakeholders as many countries lack the resources to actively investigate such reports.
«Fines grow – more than $ 40 billion after the financial crisis, but is this really deterring financial institutions that promote money laundering? Woolley asks in an email received by CNBC on Monday. – Compared to the trillions of dollars smuggled around, it looks like the simple cost of doing business».
HSBC shares fall to lowest level since 1995 following money-laundering report
She suggested focusing the financial sector on «effective», not on «technical» conformity.
«The days of hiding behind complexity and pushing papers are over. The entire industry needs to collaborate more effectively to adhere to common policies and prevent criminals from entering the financial system», – the expert believes.
The Institute for International Finance (IIF) on Sunday hoped the study’s findings would nudge policymakers around the world to implement urgent reforms to tackle financial crime, which the president and CEO said Tim Adams, «poses a serious threat to society as a whole».
«Today’s reports highlight the need for intelligence-driven changes in financial crime risk management, driven by significant improvements in public-private collaboration and cross-border information sharing, combined with the use of technology, to improve the efficiency of the global financial crime system.», – said Adams.
IIF emphasizes the balance between managing risk to prevent financial crime and ensuring access to the financial system for law-abiding clients. It has been suggested that SAR as part of this balance should work simultaneously with the exchange of operational and tactical intelligence information.
IIF also stressed the importance of identifying the true owner or person in control of a business relationship., «in a reliable and transparent way through beneficiary ownership information reform».
In a recent DBRS report, Morningstar highlighted the growing focus on internal controls and the significant costs associated with retrospective remediation of compliance violations, raising the question of whether investing early will lower overall costs..
«In our opinion, establishing adequate internal controls should be a priority for banks. Despite pressure on profitability from COVID-19 and low interest rates, banks must continue to invest in strengthening operational risk controls», – told CNBC on Monday Tomas Valkovich, Vice President, Financial Institutions Group DBRS Morningstar.
«We are currently seeing increased regulatory scrutiny focused on overseeing banks’ operational risks and believe that any repeated failures in areas such as money laundering or terrorist financing prevention could result in severe financial penalties.», – added expert.
FinCen leaks represent the latest in a series of global financial system scandals that have followed the Panama Papers, 1MDB and Luanda Leaks in recent years..
FinCen filing news triggered a fall in European bank stocks on Monday, with Stoxx 600 Banks down 4.6% by midday and HSBC’s share price hit a 25-year low.