US OCC finds "deficiencies" in Wells Fargo's anti-money laundering controls

By Niket Nishant, Nupur Anand and Chris Prentice

(Reuters) - A top U.S. banking regulator has found "deficiencies" in Wells Fargo's anti-money laundering (AML) controls and financial crimes risk management practices, it said on Thursday in an enforcement action order it issued against the bank.

Wells Fargo has begun to take corrective action and committed to remedy the issues, the Office of the Comptroller of the Currency (OCC) said in a statement.

Under the terms of the OCC's agreement with Wells Fargo, the bank cannot expand into certain high-risk areas without permission from the regulator. The OCC, however, is not seeking any monetary penalty.

The lender will also have to boost its front-line financial crimes risk management on anti-money laundering and sanctions controls as well as meet new reporting requirements.

"The bank has been going through a clean-up process for years and the latest move by OCC shows that it is still very much under investigation and I would expect that to continue," said Chris Marinac, director of research at financial adviser Janney Montgomery Scott.

A fake accounts scandal in 2016 prompted heightened scrutiny of the bank, and led to billions of dollars in penalties and several shareholder lawsuits.

CEO Charlie Scharf has been working on boosting compliance since he took over the top job in 2019. But the bank continues to operate under a restrictive asset cap from the Federal Reserve that prevents it from growing assets beyond $1.95 trillion until regulators deem it has fixed its problems.

"There was a false optimism earlier this year... that the asset cap would be removed soon but these latest developments show that the bank still has work to do," Marinac added.

Shares of Wells Fargo fell 4%, regaining some ground after initially dropping as much as 6.5% on the OCC news.

"This is a reputational setback. It could be a further setback when it comes to removing the asset cap as these developments show that they are still under a lot of scrutiny," said Brian Mulberry, a client portfolio manager at Zacks Investment Management, which owns Wells Fargo stock.



"We have been working to address a substantial portion of what's required in the formal agreement, and we are committed to completing the work with the same sense of urgency as our other regulatory commitments," the bank said.

In its latest quarterly filing with the U.S. Securities and Exchange Commission, the bank disclosed that authorities were investigating issues related to its AML and sanctions programs.

Source: Investing.com