Figures might suggest that financial wrongdoing fell, but a backlog of cases that piled up during the pandemic explains, in part, why there has been a slide in the volume of fines.    

The total value of penalties imposed on financial industry players fell by a quarter in the first half of 2022 from a year ago and, for the first time, firms were punished for breaching ESG standards, figures show. 

The total volume of fines levied against financial institutions for compliance breaches was about 183 compared with 306 in the same period in the previous year, according to Fenergo, a firm providing digital transformation, customer journey and client lifecycle management services. 

A backlog of cases that piled up during the pandemic explains why there has been a slide in the volume of fines, Fenergo said. 

In the first half of the year enforcement actions levied on financial institutions and their employees totalled $1.6 billion for non-compliance with anti-money laundering, ESG and data privacy regulations, compared with $2.112 billion a year before. 

Fenergo noted that the Securities and Exchange Commission imposed a $1.5 million penalty on BNY Investment Adviser for omissions and misstatements about ESG. 

North America saw by far the single biggest regional increase in the value of financial penalties from over $1 billion ($1,543,425,008) in H1 2022, compared with $701,459,014 in H1 2021, the firm said. 

At just under $18 million, the UK came a distant second – although this figure is way down on the $32,659,931 recorded this time last year.  

Global energy trading and commodities giant Glencore paid the single largest penalty ($1.1 billion) for a series of foreign bribery and market manipulation schemes. Second on the list was the USAA Federal Savings Bank, a century-old institution that mainly does business with US military veterans, was fined $140 million for failing to follow AML regulations. In the UK, the Financial Conduct Authority imposed a $9.4 million penalty on insurance broker JLT Specialty for alleged financial crimes including bribery.  

Crypto offenders
The first half of 2022 also saw the continued rise of crypto firms being targeted by regulators. BlockFi agreed to pay one of the largest-ever penalty assessed in a crypto enforcement  action ($100 million) for failing to register its interest-bearing lending product with the regulators. Fenergo said this was the second year running where a crypto firm was hit with a penalty of $100 million.

“The decrease in the value of enforcement actions seen in the first half of this year is a result of a continued backlog from the pandemic. This had a huge impact in the velocity of regulatory  investigations,” said Ned Kulakowski, financial crime consultant at Fenergo. “That said, even accounting for Covid, the sheer size of some of the penalties being paid suggest that financial institutions, especially in the US, need to be doing much more to manage the financial crime risks to which they are exposed. Without strong AML/KYC systems and controls that allow financial institutions to not only know their customer and the associated risks, but also understand their behaviour throughout their lifecycle, criminals will continue to exploit any deficiencies.”  

To see a previous Fenergo report on the scale and volume of fines and regulatory actions, see here.