Promontory Financial Group LLC was sharply criticized by the New York banking regulator for its work reviewing Standard Chartered Plc’s dealings with Iran and other countries under U.S. sanctions, leading the agency to effectively block the firm from doing much future work for banks licensed in the state.
The suspension deals a blow to Promontory, which advises firms on regulatory requirements with a slate of executives and directors that has included officials from the Federal Reserve, U.S. Treasury and Securities and Exchange Commission. Founded by former Comptroller of the Currency Eugene Ludwig, its board also includes Arthur Levitt Jr., Alan Blinder and Mary Schapiro.
Promontory’s review into how the British bank complied with U.S. anti-money laundering and sanctions laws lacked independence, the Department of Financial Services said Monday. The Washington-based firm is barred from receiving confidential supervisory information for New York-registered banks, DFS said, which could prevent it from doing such work in the future.
Promontory characterized the DFS action as “regulatory overreach.” It said it would ask a New York court to stay the move and also plans to sue. The agency “has willfully misconstrued our work based on a handful of e-mails taken out of context,” Promontory said in an e-mailed statement Monday, adding that the DFS report doesn’t dispute the accuracy of its work.
The DFS said it had found “numerous instances where Promontory, at the direction of the bank or its counsel, or at its own initiative, made changes to ‘soften’ and ‘tone down’ the language used in its reports, avoid additional questions from regulators, omit red flag terms or otherwise make the reports more favorable.”
The DFS, which oversees New York’s banking, insurance and financial-service industries, has sought to rein in what it’s called an area of “vital concern” -- the independence of monitors and consultants. Benjamin Lawsky, who stepped down as superintendent in June, had said the agency has the power to shut down these firms if they don’t comply with standards for independence.
Controlling access to confidential supervisory information gives regulators like DFS “the keys to the kingdom for consultants,” Lawsky said in June 2013. “We have the power to shut off the spigot. Using that authority could be a way to impose accountability.”
DFS began investigating Promontory’s work on London-based Standard Chartered in 2013. The bank hired Promontory to conduct “Project Green,” a 2010-2011 review of its compliance with U.S. laws. DFS, which was conducting its own investigation into the lender, relied on Promontory’s reports in its probe. The DFS was only formed in 2011.
Standard Chartered was ordered to pay $340 million in 2012 and install a monitor to resolve charges it had improperly provided U.S. dollar clearing in 59,000 transactions worth $250 billion to Iranian customers. The monitor later found further failures, leading to another $300 million penalty in 2014.
Standard Chartered spokesman Simon Kutner declined to comment on the DFS report.
DFS’s later investigation into Promontory’s work on the case found that the firm softened wording and removed details that could have helped the regulator in its probe of the bank. A senior analyst at Promontory wrote that “the most important thing is that we get to the end of the project without jeopardizing our relationship with” the bank, according to the DFS report.
It’s “the same conflict that major accounting firms, which also have been attacked by the New York state financial regulator, and lawyers have, in that they’re being paid by clients,” Levitt said Monday in an interview with Bloomberg Radio. Levitt is also a director at Bloomberg LP, and Schapiro is an independent adviser. Both are former SEC chairmen.
In 2013, Deloitte LLP settled with the regulator, agreeing to a $10 million penalty and suspension from working with New York-chartered banks for what the DFS called a “lack of autonomy” in advising Standard Chartered. Last year, PricewaterhouseCoopers LLP agreed to pay $25 million and was banned for two years from taking new consulting work from DFS-regulated firms after sanitizing a sanctions and money-laundering controls report for Bank of Tokyo-Mitsubishi UFJ Ltd.