HSBC board-level committee may prompt other banks to focus on enterprise-wide risk management

Reuters

A high-profile, board-level committee announced by HSBC on Wednesday is the result of a regulatory push towards enterprise-wide risk management, and other transnational banks are likely to consider taking similar steps soon, analysts said.

“It will be interesting to see if other banks do something similar or whether this is just HSBC responding to the criticism that it received. I have a feeling it’s going to be the start of a trend,” said Rob Rowe, a lawyer with the American Bankers Association’s Center for Regulatory Compliance.

In December HSBC agreed to pay $1.9 billion to settle U.S. regulators’ and law enforcement agencies’ allegations that its anti-money laundering program was deficient for years and allowed drug cartels in Mexico and Colombia to launder hundreds of millions of dollars. The settlement also addressed sanctions violations involving Iranian entities. The UK’s Financial Services Authority (FSA) also took action, requiring HSBC to take steps to remedy its anti-money laundering weaknesses. One of those requirements was the creation of the board-level anti-money laundering committee announced Wednesday.

“The Committee is part of our undertaking with the FSA, although it’s something we’d been considering for some time. We’re determined to become the best in class in terms of global standards, and this is one way we will go about making that happen,” HSBC spokesman Robert Sherman said in an email to Compliance Complete.

The so-called Financial System Vulnerabilities Committee “will provide governance, oversight and policy guidance over HSBC’s framework of controls and procedures designed to identify areas where HSBC and the financial system more broadly may become exposed to financial crime or system abuse,” HSBC said in a press release.

It added that the Committee would help Chief Executive Stuart Gulliver simplify the institution’s business activities and enhance risk management and control by improving standards across the bank. A primary goal is to help HSBC meet tax transparency and compliance standards, the prevention of terrorist financing and association with illegal drugs activities. Jim Comey, who was U.S. deputy attorney general from 2003 to 2005, will join Europe’s biggest bank as a non-executive director in March and will be a member of the new Committee.

Other participants will include Stuart Levey, a former undersecretary for terrorism and financial intelligence in the U.S. Treasury, who joined HSBC last year as chief legal officer and Bob Werner, who formerly headed Treasury’s anti-money laundering and sanctions enforcement units and recently became head of financial crime compliance, a new role.

Four meetings a year

HSBC’s Sherman was unable to say when the committee will have its first meeting. It will meet at least four times a year, he said.

“This certainly elevates anti-money laundering compliance to the highest level within the bank’s structure and reinforces the notion that, over the years, it has emerged from a backwater function to one of the most significant compliance challenges facing major financial institutions,” said Peter Djinis, a former regulatory policy official with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

“I am impressed that HSBC has recruited an ‘A list’ of candidates to assist the bank in this endeavor,” he added.

The ABA’s Rowe said there is a “growing sensitivity” to the need for enterprise-wide risk management, which has emerged as a key priority for regulators.

While the Office of the Comptroller of the Currency made that message clear when issuing a cease-and-desist order to HSBC for its anti-money laundering lapses, it also made the point in an order issued to JPMorgan earlier this month. Although the order against JPMorgan did not include a fine, it cited widespread anti-money laundering lapses that sources familiar with the action said were in large part the result of failures to implement policies across business lines and around the world.

“All of the large banks are now trying to figure out how to coordinate. When you’ve got a branch in London and a branch in Shanghai and a branch in Buenos Aires you’ve got different jurisdictions with different requirements so trying to coordinate all of that at the holding company level is getting to be a real challenge,” Rowe said. “Having a committee at the board level raises it and ups the authority to make sure that everyone toes the line.”

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