Financial regulatory body OCC imposes Anti-Money Laundering (AML) disciplinary action against Wells Fargo.

Financial regulatory body OCC imposes Anti-Money Laundering (AML) disciplinary action against Wells Fargo.

The Office of the Comptroller of the Currency (OCC) has issued an enforcement action against Wells Fargo, highlighting flaws in the bank's anti-money laundering (AML) internal controls and financial crimes risk management practices. This action primarily focuses on deficiencies in oversight of sanctions compliance risks and unsafe or unsound risk management practices at Wells Fargo Bank.

The enforcement requires Wells Fargo to strengthen its governance, risk management, and compliance frameworks focusing on sanctions and AML risk. The bank must also improve its internal controls and monitoring systems to detect and prevent illegal transactions, ensuring ongoing compliance with the Bank Secrecy Act and related AML laws, including accurate and timely currency transaction reporting.

The 26-page agreement with Wells Fargo does not mention a specific fine. However, the bank is required to pay a penalty of $67.8 million, as reported in previous enforcement actions.

Wells Fargo must enhance its AML and sanctions risk management practices, notify the OCC before expanding some of its offerings, and seek prior written approval from the agency before launching new products or services or entering new geographies. The bank is also required to submit a plan to address AML/BSA and Office of Foreign Assets Control sanctions shortcomings and adopt a program to ensure the integrity of data relevant to AML/BSA and sanctions compliance systems.

The agreement also tasks Wells Fargo with improving internal controls, policies, and procedures, reporting, and management and board accountability around AML and sanctions practices. The bank's Chief Financial Officer, Mike Santomassimo, stated that Wells Fargo has continued its client remediation work on the issues mentioned.

It is unclear if other banks could be at risk of a similar OCC order. Other big banks, such as Bank of America, Citi, and JPMorgan Chase, have mentioned AML and sanctions issues in their recent regulatory filings. Wells Fargo remains under a $1.95 trillion asset cap, imposed by the Federal Reserve in 2018.

Despite these challenges, Jefferies analyst Ken Usdin suggests that the new enforcement action may not significantly increase Wells Fargo's overall costs due to the bank's recent hiring of 10,000 employees and increased spending of $2.5 billion per year since 2018 in its risk and control groups.

This enforcement action is a continuation of the scrutiny Wells Fargo has faced in recent years. Six of the nine consent orders against the bank have been lifted since Charlie Scharf became CEO. However, the bank's AML compliance environment remains under regulatory scrutiny due to these historical weaknesses.

1. The OCC's enforcement action against Wells Fargo underscores the need for the bank to strengthen its wealth-management and finance practices, specifically focusing on sanctions and anti-money laundering (AML) risk.
2. The enforcement highlights the importance of improving the bank's internal controls and monitoring systems, ensuring compliance with the Bank Secrecy Act and related AML laws, including accurate and timely currency transaction reporting.
3. The agreement with Wells Fargo requires the bank to enhance its fintech systems, particularly in the areas of AML and sanctions risk management, and adopt a program to ensure the integrity of data relevant to AML/BSA and sanctions compliance systems.
4. Amid the ongoing regulatory scrutiny and historical weaknesses in its AML compliance environment, reports suggest that other banks, such as Bank of America, Citi, and JPMorgan Chase, could also be at risk of receiving similar OCC orders due to AML and sanctions issues.

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