HKMA blames StanChart's NY office for anti-money laundering failures
With city's regulatory regime in spotlight, the agency cites anti-laundering failures at bank's New York operations that led to US$300m fine
The Hong Kong Monetary Authority put the blame for Standard Chartered's anti-money laundering failures squarely on the bank's New York operations yesterday in response to queries from the .
"The Hong Kong Monetary Authority must point out that the [ruling] reflects SCBNY's failure in fully meeting the requirements imposed by the US authorities over transaction monitoring systems in the US," the HKMA said in a strongly worded statement sent to the . "It, however, does not reflect any comments on SCBHK's anti-money laundering systems and controls."
The New York Department of Financial Services said on Tuesday Standard Chartered's New York branch failed to flag high-risk transactions from clients in Hong Kong and the United Arab Emirates.
In response, the bank will temporarily suspend dollar-clearing services to "certain retail business clients" in Hong Kong and pay its second fine to the US in two years. In 2012, it was fined US$667 million.
Clients affected by the selective suspension of services in Hong Kong would number "a few hundred", representing a very small percentage of the bank's business, Standard Chartered said in a statement emailed to the . "The impacted clients from the order have been selected using a number of factors, including nature of business and transaction behaviour."
Without more clarity on the number of customers affected, uncertainty would hang over Standard Chartered's business in Hong Kong, analysts said.
"No one can judge that because no one has the numbers," said Jim Antos, a banking analyst at Mizuho Securities.
Small and medium-sized businesses were likely to feel the brunt of the partial suspension in Hong Kong, said Shailesh Raikundlia, a London-based analyst at Espirito Santo Investment Bank, adding that that remained a small part of Standard Chartered's total loan book.
"Personally, I don't think there will be a large impact," Raikundlia said.
The fine and the halt to some dollar-clearing business were the latest bad news to hit the bank, beleaguered over the past year with dwindling financial businesses in Asia and an increasing cost of compliance globally.
On the same day the New York regulator lodged to fine, Douglas Flint, the chairman at the bank's biggest global competitor, HSBC Holdings, said its compliance costs were expected to drop.
Both Standard Chartered and HSBC have been dogged with rising regulatory costs and posted interim results earlier this month that undershot already negative market expectations.
Pre-tax profits at Standard Chartered tumbled 20 per cent year on year to US$3.3 billion in the first half. HSBC fared somewhat better, but profits before tax dropped 12 per cent to US$12.3 billion.
Both banks in their interim reports noted the rapidly increasing cost of compliance, with HSBC calling the costs "unprecedented".
The US fined HSBC US$1.9 billion in 2012 after the authorities alleged the bank assisted drug cartels to launder money.