Tom BurroughesEditor's note: this item has been updated to take account of latest developments involving Societe Generale in Japan; see below.
The “naughty corner” for miscreant banks and other wealth management institutions is getting crowded. Charges of interbank rate fixing, lax anti-money laundering controls and questionable pricing policies have been levelled - and in some cases punished heavily. Besides misbehaviour, there have also been some losses – such as at JP Morgan – which embarrassed the firms concerned.
Some of the failings that have been punished, such as Barclays’ misbehaviour over the interbank interest rate rigging affair, go back several years and as of the time of writing, firms have moved, or say they have done so, to clean up their act. But what must clients, such as those of wealth managers with ties to some of these banks, think? In almost every case, there is a variation on the line of “never again” and “we have turned over a new leaf”, until, almost inevitably, some other firm is punished for an offence. Would-be private clients must wonder where they can find an unblemished bank. (This is a fact likely to be seized upon by smaller firms.)
Having said all of which, I don’t doubt that the firms making the headlines recently, most obviously HSBC (anti-money laundering) and Barclays (LIBOR rigging) are aware of the work they must embark upon to improve their reputation. These firms must engage as openly as they can with clients (and for that matter, constructive critics such as this publication).
By way of a guide to some of the problems that have hit these firms, here is a summary of the main institutions. Not all of the cases mentioned are complete and could be subject to further action. In the case of JP Morgan, the loss is not necessarily the result of any wrongdoing. The summary here is in no way a comment by this publication as to the specific responsibility of the firms concerned.
Societe Generale
Japan’s Financial Services Agency in October ordered the suspension of Societe Generale's Japanese private banking business, after discovering “serious violations of laws and regulations”, during an inspection.
The FSA took administrative action against the French lender, after “serious problems that may impede sound and appropriate business operations were recognised, regarding the governance system, the compliance system, and the customer protection management system”.
SocGen had to suspend most of its private banking division, which will mean not accepting new money and soliciting for new money, between 23 October 2012 to 22 November 2012. SocGen must also suspend most of its trust business in the corporate division between 23 October 2012 to 22 January 2013, which the bank says is a non-core asset.
The French banking giant has also been reprimanded by Hong Kong's Securities and Futures Commission for lack of internal controls of its wealth management activities in its Hong Kong branch, leading it to reimburse customers more than $11 million (amounts are in US dollars unless otherwise stated). The SFC raised concerns that, in over 3,000 transactions undertaken between April 2003 and January 2006, customers of the bank's Hong Kong-based wealth management activities paid or received a different price for over-the-counter products, from the actual price transacted for them by SocGen, with the difference, or margin, being retained by the bank as a fee.
Barclays
UK-listed Barclays has incurred penalties from US and UK authorities totalling £290 million (around $455 million) for misconduct relating to the inter-bank interest rate market. Chief executive Bob Diamond, a high-profile character renowned for his large bonuses and hard-charging style in running the bank, has resigned. Lord (Adair) Turner, chairman of the Financial Services Authority, the UK regulator, branded the LIBOR-rigging as a huge blow to London’s reputation as a financial capital. The FSA is probing other banks; a letter sent to the New York Federal Reserve, and recently published, mentioned Lloyds Banking Group as a firm that is possibly implicated. The US Justice Department is carrying out a criminal investigation into the rate-rigging affair. Lloyds has declined to comment on the claims that it was involved.
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