State Street Told To Improve AML Regulation Compliance

State Street Told To Improve AML Regulation Compliance

State Street was ordered by the Federal Reserve to improve its compliance with anti-money laundering regulations, making the Boston-based bank the latest to be tagged by the central bank over such issues. State Street, one of the world’s top custodial banks, will also bring in an independent firm to review account and transaction data to see if it properly managed suspicious activity.

State Street asked to submit plan in 60 days

Last month, State Street indicated that it expected to face an enforcement action after failing to comply with the Bank Secrecy Act, anti-money laundering rules and U.S. economic sanctions. The bank, in recent years, has had to grapple with regulatory probes on issues including foreign exchange trading and soliciting business from public pension plans. The bank warned last month that it would likely face a public enforcement action from the Federal Reserve and Massachusetts Division of Banks.

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The latest action was the second from the Fed in a week against a bank for anti-money laundering problems. Last week, Discover Financial Services was the subject of a similar enforcement action which required the firm to add additional personnel, surveillance systems and other resources to its compliance program.

In a June 1 agreement, State Street agreed to submit a written plan to the Fed outlining how it would strengthen its BSA/AML risk management program across a number of relevant areas. The agreement requires State Street 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.

State Street to implement effective transaction monitoring system

State Street’s written plan requires the bank to include specific measures to address funding “commensurate with the compliance risk profile of the organization” and to enhance information flow from the compliance office to the board of directors, as well as procedures “to require the escalation of significant matters… to appropriate senior officers and the board of directors.”

The Boston-based bank must also increase the frequency and scope of its BSA/AML compliance risk assessments to include all business lines and clearly define acceptable risks for each and strengthen accountability of compliance personnel and internal controls and assessments.

The agreement also envisages the bank submitting a separate plan and timetable within 45 days for the “full installation, testing, and activation of an effective automated transaction monitoring system” that will “reasonably ensure the timely, accurate, and complete reporting…. of all known or suspected violations of law” to appropriate authorities.

Stressing its commitment to the regulatory requirements, the bank said in a statement: “We are committed to comprehensively addressing the regulators’ concerns and meeting our compliance obligations.” The statement added: “The deficiencies identified relate to State Street’s internal compliance programs under certain banking regulations.”

Though 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, which in 2012 agreed to pay $1.9 billion to settle allegations it ignored signs of illicit activity for years.

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