Citi given record fine by BoE for ‘serious’ reporting failures US bank’s British operation did not ‘deliver accurate returns’, says Prudential Regulation Authority

Source: FT

The Bank of England has hit Citigroup with a record £44m fine for “serious” reporting failures that left UK regulators with an incomplete picture of the financial health of one of the world’s biggest banks. Citi’s UK operations, which account for about 15.6 per cent of the US bank’s assets, lacked a proper framework for reporting its capital and liquidity position for more than four years, according to the Prudential Regulation Authority, the arm of the central bank that imposed the penalty on Tuesday. The failings from Citi, which stretched between June 2014 and the end of 2018, led to “significant errors” on six substantive matters that “had a material or potentially material impact on the returns”, the PRA said. The fine is the largest yet from the PRA, which was established six years ago and supervises lenders and insurers in the UK. It is also the first enforcement action against a systematically important financial institution, one the regulator believes could disrupt financial stability if it fails. “Citi failed to deliver accurate returns and failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank,” said Sam Woods, PRA chief executive. In one instance, Citi’s broker-dealer unit, CGML, understated its risk-weighted assets by $15.4bn — although the PRA concedes some of this was due to technical interpretations of rules — while it misreported its liquidity ratio by as much as 47 per cent, the regulator’s investigation found. “These errors meant that cumulatively CGML’s capital position was worse than originally reported to the PRA and its liquidity position was better than originally reported,” the watchdog said. The US bank’s UK operations remained in surplus to its capital and liquidity requirements throughout the period in question. Yet senior managers at Citi “had limited understanding and awareness of the firms’ own policies and procedures relating to the UK regulatory reporting control framework”, the regulator added. The bank did not dedicate enough staff to ensure returns on its liquidity position were accurate, with staff in Budapest and Mumbai responsible for producing regulatory reports, according to the PRA. The penalty for Citi comes just weeks after the PRA put bank bosses on notice of the need to ensure accurate and timely regulatory returns. Like other regulators, the PRA uses submissions from banks to monitor their financial health. “They are clearly worried about this issue beyond Citi, and this case sends all the right messages for the PRA to the rest of the sector,” said Paul Sharma, the former deputy head of the PRA, now at Alvarez & Marsal. “The accuracy of reporting has become a significant issue not just for the Bank of England but also for the ECB and across Europe.” Citi co-operated with the PRA and settled at the earliest opportunity, cutting the size of the penalty from £63m, the regulator said. The fine was levied at three of its UK units: CGML, Citibank NA London branch, and Citibank Europe Plc UK branch. In a statement, Citi said that it “places a high priority on meeting its regulatory reporting requirements, and has devoted significant resources to UK financial reporting before, during and after the period to which the PRA’s notice relates”. The bank added that it had resolved all of the failings highlighted by the PRA. Citi was not the only big US bank on Tuesday to land a fine from regulators for its record-keeping. In a separate case, Goldman Sachs received a $1m fine from the Commodity Futures Trading Commission after a security patch on the bank’s hardware that monitored the calls of traders and sales teams’ calls caused recordings to fail over a three-week period. CFTC investigators became aware of the glitch only after Goldman was unable to turn over audio recordings to them in an unrelated investigation. Goldman Sachs said: “We are pleased to have resolved the matter.”

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