Q2 2019 Financial Services Enforcement Actions Tracker

A total of 38 actions were levied by federal regulators in Q2 2019.  The number of regulatory enforcement actions increased 52% from Q1 2019 and was driven primarily by an increase in activities from the FDIC and FRB as seen in Table 1.Table 1 Financial Services Enforcement Action Tracker Q1 2019Starting from Q4 2018, the FDIC has been making up a larger percent of overall actions enforced by federal regulators: In Q4 2018, it enforced 29% of total actions; in Q1 2019, it enforced 32% of total actions; and in this quarter, FDIC enforced 11 actions, representing nearly 30% of total actions.  Some of FDIC’s top regulatory focus areas are National Flood Insurance Program violations, and Governance Deficiencies related to Insufficient Capital and BSA Violation. 

Compared to the same period in previous years, there was an overall downward trend in number of actions enforced by federal regulators: in the first two quarters of 2016 and 2017, federal regulators enforced over 90 actions on average; however, in the first two quarters of 2018, federal regulators only enforced 66 actions; and the number continued to decrease in 2019, with only 63 actions enforced in the first two quarters, representing a 32% decrease compared with same period in 2016. 

Federal Actions Highlights from Q2 2019

Actions by Regulators

  • A total of 38 federal level regulatory actions were observed this period.  Compared with 25 federal actions in the last quarter and 28 federal actions in Q2 2018, the current quarter is a 52% increase since last quarter, and a 36% increase from Q2 2018. 
  • In Q2 2019, there were 32 actions levied by the five major federal regulators, including the Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Federal Reserve Bank (FRB), and Department of Justice (DOJ).  The number is a 45% increase since last quarter, and a 45% increase compared with Q2 2018. 
  • In this quarter, both the FRB and the DOJ had their highest number of actions in a single period observed over the past five quarters: a total of five actions were levied by the FRB in Q2 2019, an increase of four over last quarter, and a 67% increase compared with Q2 2018; a total of six actions were levied by the DOJ in this quarter, an increase of two over the last quarter, and a 20% increase compared with Q2 2018.
  • The Q2 2019 increase by federal regulators was primarily driven by activity from the FDIC, with 11 actions enforced, representing 29% of total actions enforced by federal regulators.

Actions by Action Types

  • Civil Money Penalty is the most frequently used action type for federal regulators to enforce regulatory requirements. In Q2 2019, 24 actions involved Civil Money Penalty, making up 63% of the 38 federal actions.  Last quarter, there were only 13 actions involving Civil Money Penalty, making up 52% of the 25 federal actions. 

Actions by Cited Regulations

  • National Flood Insurance Program was the area of law that was cited the most during this quarter, with a total of nine actions, or 24% of total Q2 2019 federal actions.  It is noteworthy that most of these actions were enforced by the FDIC.  Last quarter, it was only cited once. 
  • Office of Foreign Assets Control (OFAC)-related violations were the area of law that was cited the second-most frequently during this quarter, with a total of eight citations accounting for 21% of the total Q2 2019 federal level enforcement actions.  The increase was primarily driven by the actions enforced by multiple regulators on Standard Chartered Bank and UniCredit Bank. 
  • Bank Secrecy Act/Anti-Money Laundering laws (BSA/AML) is the most frequently cited area of law in federal actions during the past five quarters, with a total of 29 citations accounting for 14% of the total 201 observed regulatory citations. 

Actions by Business Area

  • Three federal actions in the quarter were related to closed-end mortgage origination or mortgage servicing, with one bank having improper handling of mortgage servicing transfers that included incomplete or inaccurate loss mitigation and escrow information; one bank submitted mortgage-loan data that contained errors; and one bank engaged in unlawful redlining in Indianapolis that involved lending discrimination.
  • Two federal actions in the quarter were related to student loans, with both involving unfair, deceptive, or abusive acts or practices (UDAAP).

Monetary Penalty by Violation Types

  • In Q2 2019, Improper Foreign Transactions has been the source of the highest amount of associated monetary penalties enforced by federal regulators, with almost $1.7 billion enforced. It is noteworthy that Improper Foreign Transactions was also the source of highest amount of monetary penalties in the past two consecutive quarters.  However, one year ago, UDAAP, Improper Auto Lending, and Improper Mortgage Loan Practices were the violation types that caused the most monetary penalties. 
  • In the past five consecutive quarters, Improper Mortgage Loan Practices have been the source of the highest amount of associated monetary penalties enforced by federal regulators, with almost $10 billion enforced, most of which were related to carryover cases from the credit crisis that involved loan underwriting and securitizing/issuance of residential mortgage-backed securities.  
  • A total of 53 actions over the past five quarters involved Governance Deficiencies, making it the source of the highest number of occurrences with over $1.3 billion in fines or penalties. Governance Deficiencies are cases when a financial institution and/or its board failed to fulfill its fiduciary responsibilities in various areas of bank management, such as compliance risk management, operational efficiency, etc.  Most of these observed Governance Deficiencies violations were related to UDAAP, insufficient capital, BSA/AML, and risk management. 

A summary of this report was featured in The Wall Street Journal "Morning Risk" Report. 

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Special thanks to contributors Caitlin Cremlin and Siwen Tang.

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