Wells Fargo fined €5.8million Irish regulator

Wells Fargo Bank International (WFBI)  has been reprimanded and fined €5,880,000 by the Central Bank of Ireland for regulatory reporting breaches and related governance failings.

The company has admitted five breaches.  The breaches varied in duration from 1 January 2014 to 28 February 2019.  The breaches include failure to accurately report the Firm’s capital position and to comply with a requirement in relation to liquidity testing.

The Central Bank determined that the appropriate fine was €8,400,000, which was reduced by 30% in accordance with the settlement discount scheme provided for in the Central Bank’s Administrative Sanctions Procedure.

The Central Bank’s investigation into the Firm commenced following a thematic inspection of regulatory reporting (the Inspection) in five peer credit institutions in 2016.  The Inspection focused on end-to-end processes, internal controls and governance of regulatory reporting.

The Central Bank found serious and systemic failings in the Firm’s regulatory reporting capability, relating to the following:

• Failure to calculate and report accurately the Firm’s capital position
• Failure to periodically monetise a sample of liquid assets, as required by legislation
• Weak governance arrangements including lack of robust Board and senior management oversight
• Inadequate internal control mechanisms including a failure to properly document processes and procedures
• Inadequate review by internal audit of regulatory reporting processes and procedures
• Weaknesses in IT systems and a significant number of manual adjustments used to prepare regulatory returns

The governance arrangements and internal controls relating to regulatory reporting requirements in place at the time were inadequate to such an extent that the Firm did not detect its own non-compliance with those requirements.

Seána Cunningham, the Central Bank’s Director of Enforcement and Anti-Money Laundering, said “It is a minimum requirement of being regulated by the Central Bank that firms submit accurate and timely regulatory returns.  Regulatory returns are a tool used by the Central Bank to monitor the financial position of credit institutions and the risks to which they are exposed.  The submission of inaccurate information undermines the Central Bank’s ability to properly supervise.  Miscalculation and misreporting of the Firm’s capital position, in particular, is a fundamental failure.  A firm understanding its capital position, and the accurate reporting of this in its returns are of paramount importance to understanding its safety and soundness.  This enforcement action refers to failings in relation to both capital reporting and liquidity testing.  For that reason it is considered to be particularly serious.”

“A firm must have strong internal controls in place to ensure the accuracy and integrity of its data before submitting it to the Central Bank.  Robust governance arrangements, including sound accounting procedures, are the responsibility of the board of directors and are necessary to maintain the integrity of the firm’s regulatory reporting systems and for the early detection of risks.  Deficiencies in governance arrangements expose firms to unnecessary risk in all areas of their business. ”

“WFBI’s serious failings are of concern to the Central Bank and indicate that there was a poor compliance culture as it pertained to regulatory reporting.  The financial penalty imposed by the Central Bank reflects the widespread systemic failures in this instance, and the importance of regulatory returns as a tool used by the Central Bank to supervise firms.”