Wells Fargo & Company witnessed a 4% decline in its stock value following the revelation of a formal agreement with the Office of the Comptroller of the Currency (OCC) aimed at addressing issues within the bank’s anti-money laundering (AML) and sanctions risk management practices.
The agreement highlighted deficiencies in various areas of the bank’s AML internal controls and risk management procedures, including reporting suspicious activity, currency transactions, customer due diligence, and customer identification.
Initial indications of this probe surfaced in the bank’s second-quarter Securities and Exchange Commission (SEC) filing, where it reported being in “resolution discussions” with the SEC regarding an investigation related to cash sweep options offered to new investment advisory clients.
By formalizing this agreement with the OCC, Wells Fargo has taken a significant stride in fortifying its AML and sanctions risk management capabilities. This move aligns with the bank’s ongoing commitment to enhancing its risk management framework and ensuring compliance with regulatory standards.
The management at Wells Fargo affirmed, “We have been diligently addressing a substantial portion of the requirements outlined in the formal agreement, and we are dedicated to completing the necessary work with the same level of urgency applied to our other regulatory commitments.”
Insights into Wells Fargo’s Agreement with OCC
The agreement entails the establishment of a Compliance Committee tasked with overseeing Wells Fargo’s adherence to the agreement’s provisions. Key focus areas for the action plan include front-line risk management, independent risk management, independent testing, customer identification, and suspicious activity detection.
Furthermore, the agreement mandates that the bank enhance its AML and sanctions risk management procedures, secure OCC approval for assessing the AML and sanctions risks associated with new offerings, and provide prior notification to the OCC before expanding such products.
Wells Fargo’s Regulatory Challenges
Since September 2016, Wells Fargo has grappled with a series of penalties and sanctions, including an asset position cap imposed by the Federal Reserve.
In July 2024, the bank faced a class action lawsuit alleging mismanagement of its employee health insurance plan, leading to overpayments by thousands of U.S.-based employees for prescription medications. Former employees accused Wells Fargo’s health plan of paying inflated prices to pharmacy benefit managers, resulting in excessive prescription drug costs.
In June 2024, a proposed class action lawsuit accused Wells Fargo of involvement in a $300-million Ponzi scheme that defrauded over 1,000 investors, predominantly senior citizens, of their life savings. The lawsuit contended that Wells Fargo was aware of the fraudulent activities between 2011 and 2021 and provided substantial assistance to the perpetrators while benefiting from the scam.
Over the last six months, Wells Fargo’s stock has declined by 8.9%, contrasting with the industry’s growth rate of 9.1%.
Evening for Finance Firms Under Legal Scrutiny
On September 11, 2024, The Toronto-Dominion Bank (Ticker: TD) agreed to pay a $28 million penalty in response to an order by the Consumer Financial Protection Bureau (CFPB) related to credit reporting issues. The bank was accused of mishandling customer credit information and failing to rectify its practices adequately.
TD acknowledged its misconduct in a consent agreement with the CFPB, admitting to providing false information to consumer reporting agencies, occasionally deliberately, and recognizing its lapses in addressing the identified failures.
Recently, in a settlement with the California Department of Justice concerning cryptocurrency withdrawals, Robinhood Markets, Inc. (Ticker: HOOD) is set to pay $3.9 million. Allegations claim that Robinhood prevented customers from withdrawing cryptocurrency from their accounts between 2018 and 2022.
California’s Attorney General Rob Bonta asserted that Robinhood violated state law by failing to fulfill cryptocurrency deliveries to its customers, resulting in the inability of customers to access their assets and necessitating sales to exit the platform.