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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Standard Chartered    STAN   GB0004082847

STANDARD CHARTERED

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Standard Chartered : N.Y. State to Suspend Promontory From Some Consulting Work -- Update

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08/03/2015 | 11:43am EST
By Michael Rapoport And Rachel Louise Ensign 

New York's top banking regulator on Monday indefinitely suspended Promontory Financial Group from some consulting work, saying the firm had watered down and compromised its compliance efforts for U.K. bank Standard Chartered PLC.

Promontory said it plans to take the New York Department of Financial Services to court to fight the suspension, which would be a rare legal challenge to the authority of the New York banking regulator. The department has been aggressive over the last two years in combating what it sees as conflicts of interest at consulting firms like Promontory that work for New York-regulated banks.

Promontory could file a request in court for a stay of the regulator's action early this week, a person familiar with the situation said.

"We will litigate the matter and defend our firm against this regulatory overreach," Promontory said in a statement.

Promontory, which is based in Washington, D.C., was founded in 2001 by Eugene Ludwig, a former U.S. comptroller of the currency, and positions itself as a "bank doctor" to help banks with their compliance before they get in trouble with the government. The firm has hired a number of former regulators, including Mary Schapiro, the former Securities and Exchange Commission chairman, who is now vice chair of the firm's advisory board.

Standard Chartered has agreed to pay nearly $1 billion in multiple settlements in recent years with the Nydfs and other regulators over its handling of transactions that originated in countries like Iran, Libya and Sudan that were subject to U.S. economic sanctions.

Promontory was hired in advance of those settlements to prepare reports to regulators about the bank's conduct. According to the department, Promontory improperly altered and toned down its findings.

Both at the bank's request and on its own, Promontory softened language and removed red flags that would have highlighted the bank's misconduct, the Nydfs said. In one case, the department said, the bank's counsel asked for language in a Promontory report to be made "more bland." In another, the bank's counsel allegedly told Promontory to replace "potential violations" with a more ambiguous and innocuous phrase.

"[N]o question the bank is going to have a big problem in trying to present some of these figures...and our report can go a long way toward softening the blow...," a Promontory senior analyst wrote in January 2011, according to the Nydfs.

Promontory "exhibited a lack of independent judgment" in its work for Standard Chartered, and some testimony from Promontory witnesses during the department's investigation "lacked credibility," the Nydfs said.

In some cases, witnesses' testimony directly contradicted the plain language of emails they themselves had written, the department said, and the testimony was "not plausible or credible."

The Nydfs has been investigating Promontory since 2013, but settlement talks broke down last week, a person familiar with the situation said. Promontory had offered to pay a settlement of around $20 million, but wouldn't agree to an admission of wrongdoing or a suspension, said two people familiar with the situation. The department, meanwhile, was asking for $15 million plus an admission of wrongdoing and suspension, one of the people said.

The discord between the two sides escalated further on Friday when lawyers for Promontory sent Anthony Albanese, acting superintendent of the Nydfs, a letter asking for the investigation to be transferred to another agency since former superintendent Benjamin Lawsky's new consulting firm now competes with Promontory. Mr. Lawsky couldn't be reached for comment.

Promontory's legal basis for challenging the department's authority wasn't immediately clear. Consulting firms are hired for compliance work for New York-regulated banks that get into hot water with the Nydfs, but those engagements must be approved by the department, and the department said it intends to deny any such engagements for Promontory "until further notice," barring any change in circumstances.

"This is clearly a desperate and baseless attempt by Promontory to distract from the conduct outlined in our report, which speaks for itself," said a spokesman for the Nydfs.

Promontory said the department's investigation had found "no substantive errors."

The Nydfs has been targeting consultants who review and help banks with regulatory issues, over concerns that they could be subject to conflicts of interest because the same banks whose work they assess also hire and pay them.

Two other firms, Deloitte LLP and PricewaterhouseCoopers LLP, have previously agreed to settlements with the Nydfs over similar allegations.

Deloitte agreed in 2013 to pay $10 million and accept a one-year ban from consulting for New York regulated banks over its anti-money-laundering work for Standard Chartered. PwC agreed in 2014 to pay $25 million and accept a two-year suspension over its work for Bank of Tokyo-Mitsubishi UFJ, which agreed in 2013 to pay $250 million to settle similar allegations as those against Standard Chartered.

A Bank of Tokyo-Mitsubishi spokeswoman declined to comment. A Standard Chartered spokeswoman couldn't immediately be reached for comment.

Write to Michael Rapoport at Michael.Rapoport@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com

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