Largest U.S. banks see themselves in “regulatory spiral” with no clear end
By Henry Engler, Compliance Complete
NEW YORK, Dec. 4 (Thomson Reuters Accelus) – Although five years have passed since the height of the financial crisis, top lawyers at some of the largest U.S. banks see themselves pitted in an escalating, and at times adversarial, battle with regulators, the end of which remains unknown.
At a conference sponsored by the Clearing House on Friday, senior legal representatives from JPMorgan and Bank of America painted a picture of unprecedented enforcement actions and fines across a wide range of issues, adding that the zeal of recent actions could potentially disrupt the supervisory and cooperative relationship that has long existed between banks and regulators.
“The regulatory fervor is increasing, and I don’t see any reason that it’s going to abate,” said Gary Lynch, General Counsel of Bank of America Merrill Lynch, and former head of enforcement at the Securities and Exchange Commission.
Adding to the perception of a sharp ratcheting up of enforcement actions, Stephen Cutler, General Counsel of JPMorgan, said: “Clearly, we are in a period of regulatory spiral,” underlining the massive increase in fines that his institution and other banks have had to pay in recent months.
JPMorgan agreed last week to a $13 billion settlement with the U.S. government to settle charges that the bank overstated the quality of mortgages it was selling to investors in the run-up to the financial crisis. This comes on top of other multi-billion dollar fines that the bank has been subjected to late, the most notable being the $6.2 billion penalty it incurred for the “London Whale” episode.
Cutler, who has been front and center in JPMorgan’s regulatory battles, said there was a noticeable shift in behavior among regulators in seeking to bring enforcement actions: “What’s become enforcement-worthy has changed,” said Cutler. He adding that regulators in the past had issued MRAs (Matters Requiring Attention), rather than launched enforcement actions, when they found compliance issues at a bank.
A senior regulator played down the perceptions of a crackdown. “I think the model for enforcement hasn’t really changed. The vast majority of corrective actions are still dealt through the supervisory process,” said Daniel Stipano, Deputy Chief Counsel of the Office of the Comptroller of the Currency.
“We don’t want the supervisory relationship to turn into an adversarial relationship,” he added.
Agencies piling on fines
Another issue the panel focused on was the apparent lack of coordination among agencies when assessing a fine against a bank. From the banks’ point of view, there seemed to be duplication by multiple agencies in levying fines on the same violation.
Addressing these concerns, Stipano said each agency was under a different mandate and set of statutes that required it to assess each enforcement action separately. While coordination did exist among the agencies, it was often difficult from a legal standpoint to “offset or mitigate fines” when multiple agencies were involved in an enforcement action.
“We are not trying to pile on to what other agencies are doing,” he said.
“Neither admit nor deny wrongdoing”
Another issue raised was how regulators had recently brought enforcement actions that excluded the common language where the bank would neither admit to or deny any wrongdoing. Was this a new trend, or simply a reflection of the actual cases brought by the agencies?
“There are some cases where we don’t think it’s appropriate to use that language,” said Stipano, citing recent enforcement actions against HSBC for Bank Secrecy Act violations as well as the JPMorgan “London Whale” case, where he noted, “the bank made admissions (of wrongdoing) all over town.”
With numerous regulators, all under different mandates pursuing similar enforcement actions and fines, Cutler of JPMorgan suggested that they might consider implementing an inter-agency task force that could help mitigate some of the overlapping actions that emerged in such large investigations.
(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)