6th Aug 2014 10:37
LONDON (Alliance News) - Standard Chartered PLC Wednesday said it faces a new fine from US regulators due to problems identified within part of its anti-money laundering systems and controls, the latest difficulty to emerge at the FTSE 100 bank as it tries to turn around its business amid lower profits and increased impairments.
The emerging markets-focused bank said the issues were uncovered in its post-transaction surveillance system. It said it is in discussions with the New York Department of Financial Services and the independent monitor over the issues.
The bank's latest disclosure comes two years after Standard Chartered agreed to pay USD667.0 million in civil penalties to various US authorities after the New York regulator said the bank had failed to comply with US sanctions placed on Iran. The agreement with the New York State Department of Financial Services saw Standard Chartered agree to install a monitor ? reporting directly to the department and evaluating money-laundering risk controls - for at least two years.
The new regulatory issues are in an area separate from the sanctions screening systems.
"The group believes that the resolution of these issues is likely to involve an enforcement action by the NYSDFS that would include an extension of the term of the monitor beyond the original two-year term, a monetary penalty and remedial actions," Standard Chartered said in a statement.
In a conference call with journalists, Chief Executive Peter Sands said that the monetary impact will be less than the USD340.0 million the bank paid to the New York State Department of Financial Services in 2012. The CEO said the source of the trouble with the bank's post-transaction surveillance system pre-dates its compliance troubles over US sanctions.
"After we process payments, we run them both as individual payments and series of payments through a set of scenarios to try and identify if they have indicators that suggest they may have something suspicious or illegal. These scenarios generate alerts which are examined by trained operators. Most of these alerts turn out to be innocuous, but if the operator thinks there are enough indicators they file a suspicious activity report with authorities," Sands told journalists.
"We implemented a systems upgrade in 2007 to reinforce post transactions surveillance capabilities. It did reinforce them, but it did not do so as well as it should have done. Some elements were poorly implemented around coding and systems settings, meaning some scenarios didn't quite work as they were designed. This has been something I have been engaged on and indeed the board has been kept fully informed throughout," Sands added, though he described the issues as "very different" to those faced in 2012.
Standard Chartered reported a small slip in half-year pretax profit, with the decline limited thanks to the non-repeat of a USD1.0 billion goodwill impairment charge for its Korea business, though its operating performance was hit by a weaker performance in its financial markets division. The bank said it made a USD3.25 billion pretax profit in the six months ended June 30, compared with USD3.33 billion in the corresponding period last year.
Before own-credit adjustments and the goodwill impairment last year, pretax profit fell by 20% to USD3.27 billion. Net interest income was broadly flat at USD5.60 billion, though non-interest income fell to USD3.65 billion, from USD4.39 billion, due to drops in fees and commission income and net trading income. Operating expenses edged up slightly to USD5.08 billion from USD5.03 billion. Impairment losses on loans and advances and other credit risk provisions increased to USD846.0 million from USD730.0 million.
"Our performance in the first half of 2014 is clearly disappointing," Sands said. "It is not what we strive for and not what our investors expect. In March, we made clear that this first half would be tough, and we were even more specific in our pre-close trading statement in June."
"The reasons for our weaker performance should be equally clear: continued Financial Markets weakness, challenges in Korea as we reshape our business there, and an uptick in impairment, largely due to a commodity fraud exposure in China and write-offs relating to pre-crisis strategic investments. Evolving regulatory requirements continue to add upward pressure - and uncertainty - to costs, while structurally impacting the income and return profile of some products," Sands added.
Standard Chartered said it will pay a flat interim dividend of 28.80 cents per share.
Standard Chartered's weakened financial performance has upped the stakes at the bank. Its board last month gave its backing to Chairman John Peace and Sands, when it dismissed media reports that succession planning was taking place as a result of investor pressure. The bank has seen a number of executive departures, including Richard Meddings, who guided the bank as finance director through the financial crisis and beyond. He has since been replaced by former Vodafone PLC CFO Andrew Halford.
Standard Chartered shares were Wednesday quoted down 0.1% at 1,215.00 pence.
By Samuel Agini; [email protected]; @samuelagini
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