BSA/AML focus boosts number of severe enforcement actions issued to banks

The number of severe enforcement actions handed out by regulators has increased for the second straight year, and many are related to US banks' compliance with the Bank Secrecy Act and anti-money laundering rules.

As of Sept. 19, US banking regulators have issued 48 severe enforcement actions so far in 2024, already surpassing the 43 such actions issued in full year 2023, according to S&P Global Market Intelligence data. US banks' AML and fraud departments are facing significant pressure due to increased "sophisticated" fraud attacks, said Alessio Evangelista, a partner at law firm Skadden Arps Slate Meagher & Flom LLP.

"Banks defending against large increases in fraud and other criminal activity are more likely to experience lapses in performance that are criticized by regulators and lead to supervisory and enforcement actions," Evangelista said.

Some of the banks that were hit by severe enforcement actions related to the Bank Secrecy Act and anti-money laundering (BSA/AML) rules have fintech partners or a significant digital strategy.

"With more third-party vendors and financial technology companies involved in the provision of financial services, there are a greater number of potential points of failure from a BSA/AML perspective that can lead to enforcement activity," Evangelista said.

"There has also been greater scrutiny by regulators on partnerships between banks and financial technology companies, which has also contributed to the increased level of BSA/AML enforcement actions."

S&P Global Market Intelligence defines severe enforcement actions as cease and desist orders, prompt corrective action directives, and formal agreements/consent orders handed to a bank or thrift by a federal regulator. This analysis does not include severe enforcement actions issued to holding companies or credit unions.

Regulatory websites may refer to certain cease and desist orders issued by federal regulators as consent agreements. However, cease and desist and consent orders are derived from the same section of law 12 U.S.C. 1818(b) and have the same structure, articulating both the areas of concern and the corrective actions. To maintain consistency with previous years, this analysis refers to these actions as cease and desist orders.

Wells Fargo Bank NA is the largest bank thus far to receive a BSA/AML-related enforcement action in 2024. The Office of the Comptroller of the Currency (OCC) issued the enforcement action after finding deficiencies connected with the Wells Fargo & Co. subsidiary's financial crimes risk management practices and AML internal controls in certain areas.

J.P. Morgan analyst Vivek Juneja believes the enforcement action could delay the removal of Wells Fargo's $1.95 trillion asset cap, which the Federal Reserve imposed in early 2018 in response to the company's "widespread consumer abuses and other compliance breakdowns."

"[Fed Chair Jerome Powell] indicated that they need to see improvement broadly across the firm in all areas, not just in the topics covered by the order of the asset cap," Juneja wrote in a note.

Among the banks with fintech partners or digital strategy that were issued BSA/AML-related severe enforcement actions are Malvern, Pa.-based Customers Bank, which is preparing to launch a business-to-business payment platform with enhanced compliance capabilities, and Memphis, Tenn.-based Evolve Bank & Trust, which reported a cybersecurity incident in June.

– Access an Excel file containing every bank or thrift operating under a severe enforcement action issued since 2010. – Access severe enforcement action issuance data under the "Industries" tab at the top of the S&P Capital IQ Pro website.

Greenwich, Conn.-based Fieldpoint Private Bank & Trust is the latest bank to receive an enforcement action not connected with BSA/AML. The bank and its parent company, Fieldpoint Private Holdings Inc., are operating under a written agreement with requirements relating to earnings, liquidity and capital, among other things.

"The primary circumstance warranting [the measures stipulated in the agreement] has been the economic impact of the rising rate environment affecting banks since 2022, and its pressures on funding costs, loan yields, earnings and capital," Fieldpoint Private said in a Sept. 11 news release.

Generations Bank, which is selling substantially all of its assets and liabilities to ESL FCU, entered into a written agreement with the OCC in July. The regulator found unsafe or unsound practices at the Seneca Falls, NY-based bank, including those connected with board oversight, strategic planning, liquidity risk management and interest rate risk management, according to the agreement.