Standard Chartered’s big shareholders stay quiet on compliance, say focus is on governance

August 31, 2012

By Martin Coyle

LONDON/HONG KONG, Aug. 31 (Thomson Reuters Accelus) – Standard Chartered Bank’s major shareholders are declining to openly criticise the firm’s compliance practices but some cited overall governance issues as their primary interest following its settlement over allegations it breached Iran-sanctions laws. One institutional investor said that it had discussed compliance issues with the bank before this month’s $340 million settlement was reached with New York’s Department of Financial Services (DFS) for breaches of sanctions with Iran. The UK fund manager, which declined to be named, said that it discussed the allegations in general as well as compliance issues. “Compliance was discussed,” the fund manager said without elaboration.

The enforcement action had happened so quickly that the bank had not discussed the issue with Standard Chartered before the matter became public, the source said. Afterwards, he said, several issues connected with the enforcement were raised. Speaking generally, the source said that compliance issues tended to test financial institutions but the investor was more concerned with governance issues “as a whole” rather than individual transactions.

Similarly, Temasek, the multi-billion dollar Singaporean sovereign wealth fund with a major investment in Standard Chartered, said only that it aimed for its investments to promote sound internal corporate governance. A spokesman pointed to its annual report which states that Temasek supports the formation of high-calibre, experienced and diverse boards to complement management leadership. He declined to be drawn on any discussions with the bank.

Another big Standard Chartered investor, which also declined to be named, said it would not rush to any judgments and declined to say whether it had discussed compliance issues with the bank.

Fidelity, another investor, said that the settlement was positive. However, Aruna Karunathilake, a portfolio manager at Fidelity Worldwide Investment, said through a spokesman that the settlement figure was high in view of the number of illegal transactions that Standard Chartered has acknowledged. He added that continuing settlement discussions the bank was having with other U.S. regulators excluded from the Department of Financial Services action meant that the picture surrounding the bank was uncertain.

Bank officials had disputed the contention of the New York regulator that Standard Chartered had conducted $250 billion of illegal transactions involving Iranian entities, and said there were less than $14 million in improper transactions. But the Department of Financial Services said in announcing the settlement earlier this month that it involved the higher figure.

In the UK, the Investment Management Association (IMA) said it was studying the broad role of banks and the banking system, but declined to comment on Standard Chartered and a spokeswoman said that compliance issues were not necessarily a topic the association was reviewing.

“If firms did have concerns about compliance procedures in banks in which they were invested on behalf of their clients, they would take that up with them individually from a corporate governance standpoint,” an IMA spokeswoman said.

The IMA said in a submission to the parliamentary commission on banking standards that “underlying incentive structures” within banks encouraged risk taking. “Traders and executives receive large payments for activities that focus on increasing profit in the short-term, as opposed to the long-term return on assets and prudent management of leverage. Such activities often proved damaging to the bank,” it said.

A spokesman for the Association of British Insurers, the biggest trade body for investors in the UK, said only: “In general terms we encourage companies to openly and actively engage with shareholders on corporate governance issues, including remuneration, compliance and board succession.”

A spokeswoman for Standard Chartered in Hong Kong said the bank operated a sound risk and governance structure. “We remain committed to ensuring exemplary governance and ethics in all the markets where we operate and cooperate with law enforcement agencies across our network to fight financial crime. Standard Chartered has agreed with the DFS that a monitor will be placed in the New York branch to evaluate money laundering risk controls, alongside DFS examiners,” she said.

(Additional reporting by Trond Vagen in Hong Kong.)

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. <a href=” ions/regulatory-intelligence/compliance- complete/” target=_new”>Compliance Complete</a> provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

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