For punishment, the bank was required to pay a $1. 7 billion fine and promise to improve its money laundering defenses. After permitting narcotraffickers to launder money and conducting business in off-limits countries such as Sudan and Myanmar, the bank was fined $1. 9 billion. It promised to change its ways, and to hold it to that promise, the government installed an independent monitor to keep close watch. In many cases, the banks appear to have no idea whatsoever whose money they are moving.
First and foremost, traditional revenue sources and business growth in established segments will probably be moderate at best, which would force banks to find new pathways to profitable growth. Second, scale, more than ever, could become critical as profitability pressure will put costs into greater focus. And third, advanced technology is expected to be at the heart of everything banks do. On the other hand, it is now abundantly clear that COVID-19 has acted as a catalyst for digitization.
The bank paid fines totaling $1. 1 billion to US and UK authorities, and extended the terms of the deferred prosecution agreement for the sixth time in the space of seven years. The bank apologized for its “violations and control deficiencies” but promised that none had occurred after 2014. For years, it was the primary bank of the world’s biggest Ponzi schemer, Bernie Madoff. Despite multiple warnings from its own employees, the bank never filed a suspicious activity report on him and allegedly collected $500 million in fees.
As new regulatory trends make an impact in the financial services marketplace, how can your organization remain resilient? Our 2021 regulatory outlooks explore key issues that could have a significant impact on the market and your business in 2021. Ultimately, the power to keep criminal profits from being laundered through the US financial system may not reside in the actions of a bank’s compliance office or its computer systems or even its executive tier. It may not reside with banking regulators or federal prosecutors or FinCEN. Shutting down wayward banks could have an impact on the whole economy — for the US, its major trade partners, and beyond. When other countries find their banks under US scrutiny, they step in. Last year, the government amended its 2012 deferred prosecution agreement after the bank was found to have continued clearing transactions for individuals and businesses in off-limits countries, primarily Iran.
Banks in North America and Europe aren’t expected to recover to 2019 levels anytime soon, with APAC banks potentially only getting near their pre-COVID-19 ROE average level of 9. 2% by 2022. Low rates are expected to keep net interest margins suppressed, creating strong headwinds to banks’ interest income growth. More importantly, banks played a crucial part in stabilizing the economy and transmitting government stimulus and relief programs in the United States, Canada, the United Kingdom, Japan, and many European countries, among others. Banks’ healthy capital levels before the pandemic also helped mitigate the negative impacts from the crisis and should pave the way for the global economy to thrive in the future.
In addition to accelerating digital adoption, the crisis has also served as a litmus test for banks’ digital infrastructure. While institutions that made strategic investments in technology came out stronger, laggards may still be able to leapfrog competitors if they take swift action to accelerate tech modernization. Similarly, sell-side broker estimates suggest that the average ROE of the top 100 banks in North America, 5 Europe, and APAC could decline by almost 3 percentage points, to 6. 8% in 2020.