By Chelsey Dulaney And Ryan Tracy
State Street Corp. was ordered by regulators to revamp its
compliance programs after deficiencies were found related to
internal controls, customer due-diligence procedures and
transaction monitoring.
The Boston-based bank had warned last month that it would likely
face a public enforcement action from the Federal Reserve and
Massachusetts Division of Banks. The action was the second by the
Fed in a week against a bank for anti-money-laundering problems.
Last week, the central bank said it was requiring Discover
Financial Services to make improvements to its program for
detecting suspicious financial activity, faulting the firm for
deficiencies across multiple legal entities.
The moves show the Fed is joining the Office of the Comptroller
of the Currency and the Federal Deposit Insurance Corp. in stepping
up its scrutiny of banks' anti-money-laundering programs. While
regulators have examined banks' compliance with
anti-money-laundering laws for years, they have been asking banks
to do more amid criticism that they didn't do enough to stop
long-standing problems at firms such as HSBC Holdings PLC, which in
2012 agreed to pay $1.9 billion to settle allegations it ignored
signs of illicit activity for years.
According to the agreement, State Street will be required to
submit written plans detailing how it will strengthen board
oversight of its compliance program, boost its customer
due-diligence procedures and ensure compliance with the Bank
Secrecy Act and anti-money-laundering requirements, where
deficiencies were found.
"We are committed to comprehensively addressing the regulators'
concerns and meeting our compliance obligations," State Street said
in a statement. "The deficiencies identified relate to State
Street's internal compliance programs under certain banking
regulations."
The bank will also bring on an independent firm to review
account and transaction data to see if State Street properly
managed suspicious activity. A spokeswoman for the bank said
further regulatory action could be taken if it were to fail to
address the identified concerns.
Some analysts have said they believe the hiring of an
independent consultant will mean State Street will have clarity on
the possibility of additional charges soon.
State Street's results have been weighed by higher regulatory
and compliance costs recently.
In April, State Street said it added a $150 million charge to
its legal reserves for resolving outstanding claims related to
foreign-exchange activities.
Daniel Huang contributed to this article.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
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