Regulators' review of two executives at Wells Fargo & Co. demonstrates that external scrutiny of the bank remains high and serves as a notice for executives in similar roles at other institutions, analysts say.
Wells Fargo announced Oct. 24 that Chief Administrative Officer Hope Hardison and Chief Auditor David Julian were both on leave of absence because of reviews by regulatory agencies regarding the bank's retail sales practices. The statement did not specify what agencies are conducting the reviews. Wells Fargo declined to comment further on the matter.
Representatives from the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau said they would not comment on pending investigations, and the OCC added that it would not comment on personnel actions taken by regulated banks. However, media reports said the OCC had sent letters to the two executives prior to their leave. Previously, the OCC examined incentive compensation practices across supervised banks in a process called a 'horizontal review' and found about 20,000 accounts with compliance issues.
The review of Hardison and Julian comes more than two years after the CFPB and OCC levied a consent order against Wells Fargo as a result of employees opening millions of unauthorized accounts to meet sales goals. It demonstrates that regulators are still examining the bank's retail practices, even after assessing record fines, imposing an asset cap and replacing board members, said Marty Mosby, director of bank and equity strategy at Vining Sparks. It also shows that regulators are interested in how certain roles within the bank were performed during the scandal and that the regulators may hold those individuals accountable, Mosby said.
The timing of the review of the two employees struck Sandler O'Neill equity research principal R. Scott Siefers as "unusual," but he said that regulators tend to move at their own pace and there is "no telling" how long the investigation into these areas has been ongoing.
"I think anyone who was in a control function is probably under some sort of scrutiny. Were these individuals specifically within the consumer bank? No," he said. "But they are in a control function so there's an element of culpability that the regulators must be looking for."
Regulators reserve the right to conduct deep-dive examinations into a bank, noted Oliver Ireland, senior counsel at law firm Morrison Foerster, who works on bank regulatory issues and spoke about supervision generally.
"The more problems you see, the more you look at [a bank]," Ireland said.
Wells Fargo's independent board members conducted their own investigation of the bank in the wake of its fake-accounts scandal. A report the bank released in April 2017 mentioned Hardison's name 26 times, and there is also a section dedicated to the chief administrative officer role. Julian's name does not appear in the report, and the chief auditor role is mentioned only twice.
Hardison became corporate human resource director at Wells Fargo in 2010 and chief administrative officer in September 2015. She knew about issues with sales practices throughout her time as human resources director, but thought they were employee attempts to game the incentive compensation system and did not believe them to be "pervasive," according to the independent board report.
Bert Ely, president of bank consultancy Ely & Co., said the Hardison and Julian reviews prolong the scandal's timeline and perpetuate a negative perception of the bank in the public eye.
"It's just taking a long time to put these issues behind [the bank]," he said. "I'm at a point — and I'm sure many others are at this point — where I'm no longer surprised when there's yet another announcement that relates back to these problems that go back several years now."
The review at Wells Fargo could have implications for executives across the banking industry. Regulators may be signaling that they have heightened expectations for certain internal roles that serve to check banker behavior, and that they will hold those individuals personally accountable, Mosby said. This review could cause executives at other banks to become more sensitive to their own risk and audit assessments, essentially "creating a regulator inside a company."
"I think the message is clear for every officer in a bank," Mosby said. "You're taking on responsibilities that are much broader than just ... trying to perform a function for a company."
