trending Market Intelligence /marketintelligence/en/news-insights/trending/c0Ek63_lRfVYanII1BkejQ2 content esgSubNav
In This List

Nordea to 'catch up' on compliance as Panama investigations begin


Managed Services Insights: The client lifecycle management solution


Technology & Automation Insights: Elevating KYC and onboarding efficiency


Banking Essentials Newsletter: May 15th Edition


Data Insights: Enhancing regulatory compliance and client lifecycle management.

Nordea to 'catch up' on compliance as Panama investigations begin

NordeaBank AB is undergoing a significant ramp-up of complianceprocesses, which will cost more than €100 million, executives told ateleconference following the release of the bank's first-quarter .

One analyst on the call noted that shareholders andinvestors will feel caught out by the costly plans, but CEO Casper von Koskullnoted that Nordea was a laggard in terms of operational and compliance riskpractices and must "catch up" with British and American banks thathave already invested heavily in the area.

"Operational and compliance risk is ournumber-one priority," von Koskull added.

The charges for the new anti-money laundering (AML)and know-your-customer (KYC) arrangements will neutralize some of the savingsthat the bank is making by, for example, cutting branch numbers. At a cost of€100 million, Nordea will hire an additional 400 people for its new compliancedepartment, which only recently brought on board 600 employees, it was noted onthe call.

The bank is guiding for a 3% cost increase in 2016compared to 2015.

The news of the AML and KYC expansion comes at a timeof intense scrutiny of the bank's past offshore affairs. Millions of leakeddocuments at the start of April, now known as the scandal, revealed how notonly many of the world's rich and powerful but also a number of banks areimplicated in helping to hide financial assets through offshore tax regimes.

In response to public and political pressure, Nordeastarted a "very rigorous internal investigation" to establish whetherclients were helped to hide assets from authorities, the conference heard. Theinvestigation, to be carried out by independent external experts in cooperationwith regulators, should conclude during the coming summer.

"We do not allow the bank to be used as aplatform for tax evasion," said Ari Kaperi, the bank's chief risk officer.

But during a press conference on the day of the April27 results announcement, the CEO said penalties might still result fromNordea's ties with Mossack Fonseca, the Panama-based law firm at the center ofthe scandal. The bank terminated collaboration with Mossack Fonseca earlier inApril.

Sweden's FSA had fined Nordea for overly lax moneylaundering and sanctions controls in 2015.

Once the new layer of safeguards is firmly in place,risk-weighted assets of €1.5 billion, including 80 basis points of commonequity Tier1 capital retained as a so-called "governance buffer,"might be freed up, the bankers said. This may not happen until at least 2017,however.

Meanwhile, tough new capital buffer rules from theBasel Committee of Banking Supervision are hitting Swedish banks, includingNordea hard because of the already high requirements they have to uphold underdomestic laws, von Koskull said, although he did not provide precise estimates.

The CEO added that he is aware of how rival DanskeBank is at a competitive advantage in the Scandinavian market due to themore-lenient capital demands of Danish watchdogs. "We have raised thatconcern," he told the audience.

"Althoughthe Swedish regulators have not yet introduced an additional leverage ratiorequirement, we would not rule it out, as in the summer of 2015 the FSAreleased a paper in which it laid out the positives of raising requirements soas to strengthen the banks' incentive to reduce size and risk-taking," analysts from CreditSights wrote in a note covering the bank's results. Thebank's leverage ratio at March-end 2016 was 4.4%.

Nordea is maintaining its dividend policy.