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Europe’s Banks Must Step Up To Crack Down On Financial Crime, Report Says

April 2019 by S&P Global Ratings

Six months ago, we examined the checkered track record of the European banking sector on the topic of anti-money laundering (AML) and sanctions compliance. While financial crime is a key operational risk for banks globally, we noted that European banks appear to be over-represented in the steady flow of cases of banks censured for AML and sanction breaches. We saw some signs of progress at the bank-specific, member state, and regional levels, but there seemed to be few reasons to be optimistic that such problems would not recur in Europe, in the medium term at least (see "Déjà Vu All Over Again: Money-Laundering And Sanctions Woes Continue To Haunt Europe’s Banks").

As noted in a report published today on RatingsDirect, six months on, European banks continue to suffer from a steady drip of troubling news. Further details and allegations related to the various Laundromat scandals continue to emerge, with Swedbank now under the spotlight having fired its CEO, after which the Chairman stood aside. ING and Deutsche Bank continue to feel the ire of regulators as they work to enhance customer due diligence. Standard Chartered has now finally exited its 2012 deferred prosecution agreement, after more than six years and well over $2 billion (in settlements and remediation costs). Unicredit agreed to pay $1.3 billion to U.S. authorities to settle claims of sanctions breaches during the 2002-2011 period. UBS has appealed the guilty verdict of its tax prosecution in France, having previously settled tax-related cases in the U.S. and Germany. And these are just the most recent examples. (For more information, see Europe’s Banks Must Step Up To Crack Down On Financial Crime.)

Typically, these allegations relate to legacy events, often dating from the 2007-2015 period. But such problems can take a while to emerge. So what comfort should investors have that in the coming one to two years they will not see emerging problems that stem from today’s activities? Arguably, only a little. The latent risk has been reduced by banks’ widespread enhancements to customer due diligence and tax attestations and related offboarding of noncompliant clients, as well as improved tax transparency. However, some banks will also need to change their governance of this risk to take a rather more holistic approach, and to invest in new technology and data analysis techniques. This would be an act of enlightened self-interest in two respects:

• Financial crime is a hard-to-quantify nonfinancial risk that can have significant adverse consequences for a bank; and
• Compliance costs have risen steadily across the industry, but investments could yield significant efficiencies as well as improve effectiveness.

The banks cannot do it alone, however. For the fight against financial crime to be truly effective, this will likely require changes to financial regulation, data and company law, greater investigatory resources, and efforts to remove technical obstacles. ESG risks, of which financial crime is just one, permeate many parts of our bank analysis, whether related to reputation and franchise, governance, risk exposure or solvency. Following the most recent financial crime cases, we have so far taken negative actions on Danske Bank and Swedbank. We also adjusted our view of institutional risk in our banking industry country risk assessments (BICRA) for Malta and Estonia. We did not take rating actions following other recent European bank cases, for example Deutsche Bank and ING, but continue to monitor developments. Our differentiated approach reflects that these cases vary in their fact pattern and gravity, and so financial and franchise implications for the affected banks can vary significantly. We expect that this will continue. Nevertheless, as we’ve already seen in areas such as capital and liquidity management, for financial crime risk we expect that the industry standards and practices will strengthen. In this respect, some banks will work actively and positively to support their franchise. For those that stand still, we see the investor and banking community as less willing to remain connected to banks under-delivering on governance and non-financial risk management.


• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011


• German UniCredit Bank And U.S. Authorities Settle Over Violations On Iran Sanctions, April 16, 2019
• Swedbank AB Ratings On Watch Negative Due To Implications Of Authorities’ Investigations Into Alleged Money Laundering , April 1, 2019
• Bulletin: ING’s Potential Shortcomings In Anti-Money-Laundering Processes In Italy Show Compliance Strengthening Is Not Over, March 19, 2019
• Bulletin: UBS Group AG Intends To Appeal French Court’s €4.5 Billion Fine And Damages, Feb. 20, 2019
• How Environmental, Social, And Governance Factors Help Shape The Ratings On Governments, Insurers, And Financial Institutions, Oct. 23, 2018
• Déjà Vu All Over Again: Money-Laundering And Sanctions Woes Continue To Haunt Europe’s Banks, Oct. 25, 2018
• Danske Bank Outlook Revised To Negative, Hybrids Downgraded, On Further Disclosure On Money Laundering Issues In Estonia, Sept. 25, 2018
• Estonia’s Banking Sector To Benefit From Receding Imbalances But The Regulatory Track Record Is A Relative Weakness, Sept. 20, 2018
• Malta-Based Bank of Valletta Rating Lowered To ’BBB’ On Increased Industry Risk; Outlook Remains Negative, Aug. 1, 2018
• How Does S&P Global Ratings Incorporate Environmental, Social, And Governance Risks Into Its Ratings Analysis, Nov. 21, 2017

This report does not constitute a rating action.

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