WFC Wells Fargo and Company

By Emily Glazer 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 23, 2018).

Wells Fargo & Co. is facing more challenges with one of its regulators.

The bank late last week agreed to a $1 billion settlement with the Office of the Comptroller of the Currency and Consumer Financial Protection Bureau related to its risk management in consumer-lending businesses. Meanwhile, it is planning to ask the OCC for an extension of a deadline to satisfy an enforcement action related to anti-money-laundering controls, according to people familiar with the matter.

Wells Fargo's wholesale business, which works with larger corporate customers, has been having problems for months satisfying a November 2015 consent order from the OCC. The issues relate to processes involving new and existing corporate customers, such as how the bank ensures there are proper identification documents and that it has the ability to see client activities across a common database, the people familiar with the matter said.

If Wells Fargo misses a June 30 deadline from the OCC to satisfy that order's requirements, it could result in another enforcement action against the bank, these people said. The bank in recent months has been discussing the issues with the OCC, the people said.

The struggles with the OCC enforcement action occur at a troubling time for Wells Fargo. Besides last week's $1 billion settlement, which forced the bank to adjust recently reported first-quarter earnings by $800 million, Wells Fargo in February was hit with an unprecedented enforcement action from the Federal Reserve for failing to have proper risk controls. That order barred the bank from growing past the $1.95 trillion in assets it had at the end of 2017.

Much of the bank's risk-management problems have related to its consumer-lending unit, which focuses on auto-lending and mortgages, among other services.

The latest anti-money-laundering problems Wells Fargo is contending with are also related to its controls. There are two main components of anti-money-laundering processes: One is knowing who the customer is, and the other is monitoring for suspicious activity. Wells Fargo is struggling with the former.

In the years before the OCC's anti-money-laundering enforcement action, it gave Wells Fargo several notices of deficiencies in these areas known as Matters Requiring Attention. Part of the reason for the enforcement action was the bank's failure to address the issues the OCC had raised, the people familiar with the matter said.

At the time of the 2015 action, Wells Fargo had more than 100,000 customer accounts it needed to verify with thousands requiring more specific work, the people said. Over the past year or so, Wells Fargo has reached out to thousands of clients requesting updated documentation. It needs those documents to keep those clients.

In particular, the bank's business-banking division that serves small firms with annual sales ranging from $5 million to $20 million has been struggling for months to collect certain documentation related to proof of beneficial ownership. The effort has become even more challenging since another financial regulator -- the Treasury Department's Financial Crimes Enforcement Network -- will implement more stringent rules around beneficial ownership starting in May 2018 that the bank plans to comply with, the people said.

Earlier this year, wholesale unit head Perry Pelos stepped up efforts on the issue, hosting town halls with employees in a bid to get front-office bankers more involved, the people said. In particular, the bank is requiring that the activities of high-risk customers are covered in relationship memos, summarizing the relationship and anti-money-laundering risk for those customers, they said.

The OCC has levied other settlements with big banks related to anti-money laundering in recent months.

In February, U.S. Bancorp agreed to pay $613 million in penalties for what regulators and prosecutors described as shoddy anti-money-laundering controls. The bank's anti-money-laundering program was the focus of a 2015 consent order from the OCC.

Akin to Wells Fargo's current situation, Citigroup Inc. in January entered into a $70 million settlement with the OCC for failing to comply with a 2012 consent order related to anti-money-laundering deficiencies.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

April 23, 2018 02:47 ET (06:47 GMT)

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