Yahoo Finance Citigroup (C) Breaches Fed's Rule for Intercompany Transaction
Citigroup Inc. C is again in the headlines for repeatedly breaching the Federal Reserve’s Regulation W, which limits intercompany transactions. Those breaches led to discrepancies in the company’s internal liquidity reporting. This was reported by Reuters, citing an internal company document.
Regulation W is in place to protect customer deposits and restrict the transactions between a bank and its affiliates in order to protect depositors whose funds were insured by the government.
This violation is not a single incident that reflects systemic inadequacies in Citigroup's regulatory compliance practices. Last month, the company was penalized by the U.S. bank regulators with a $136 million fine for failing to make adequate progress in fixing data management issues.
In 2020, Citi was also fined $400 million after regulators found “ongoing deficiencies” in its handling of risk management and internal controls.
In response to these concerns, Citigroup has increased its compliance efforts significantly. To fix the issue, Citigroup has been ordered to draw up new review plans for the Operations Control Center, which might require the bank to hire more employees and acquire new technologies to comply with the requirements outlined in the original consent orders.
A spokeswoman for the bank said, "We are fully committed to complying with laws and regulations and have a strong Regulation W framework in place to ensure prompt identification, escalation and remediation of issues in a timely manner."
These ongoing regulatory litigations are significant obstacles for the bank amid its attempts to transform and streamline its operations to boost its stock price. In June, CFO Mark Mason referred to 2024 as an “inflection year” and stated that by 2026, Citi aims to grow its full-year revenues by at least $6 billion with a cost reduction of at least $500 million. However, both Mason and Fraser admitted that the bank still needed to strengthen its regulatory and compliance functions.
Over the past six months, shares of C have gained 16.8% compared with the industry’s growth of 20.4%.
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Currently, C carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Financial Services Firms Facing Similar Issues
This June, Mitsubishi UFJ Financial Group, Inc.’s MUFG banking and securities units were penalized by Japan’s financial regulator for breaching the regulations governing client confidentiality. MUFG Bank Ltd., Morgan Stanley, MUFG Securities Co., and Mitsubishi UFJ Morgan Stanley Securities Co. units are directed by the Financial Services Agency to reinforce its compliance measures, per Reuters.
This order came to light following an investigation that identified several breaches of "firewall" regulations.
The Securities and Exchange Surveillance Commission identified that the client's confidential data had been exchanged on at least 26 occasions between MUFG Bank and one of its two securities firms — Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities.
Likewise, JPMorgan Chase & Co. JPM is expected to pay $100 million to the U.S. Commodity Futures Trading Commission to settle claims related to trade reporting lapses. The news was reported by Reuters, citing a source with direct knowledge of the matter. Per the source, JPM has also agreed to admit as part of the deal that it broke the agency’s rules.
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