Investors shrug off banks’ fines
Big Four’s share prices jump despite hefty R125m Reserve Bank sanction
SHARE prices of the four major banks surged this week after the Reserve Bank fined them R125-million for not complying with moneylaundering rules — sending a clear message that investors were wholly unconcerned about these “administrative sanctions”.
This was the first time the authorities had fined SA’s banks under 2010 amendments to the Financial Intelligence Centre Act, and the Reserve Bank would have hoped it would at least have had an impact on investor perceptions.
But the market’s scant regard for the penalty shows the size of the sanction will not impact levels of profits generated by four of the most profitable banks in the world.
Since the penalty was announced on Wednesday, Nedbank’s and Standard Bank’s share prices each gained 2.1%, FirstRand’s rose 1.2% and Absa, now known as Barclays Africa, climbed 3.2%.
The rather relaxed response of investors may reflect the fact that noncompliance, found by the Reserve Bank’s Financial Intelligence Centre (FIC), related only to the processes followed by the banks, and apparently did not involve any actual money-laundering.
Standard Bank was hit with the biggest penalty of R60-million, and it is now in danger of being seen to have a bit of form in this regard following the £7.6-million fine levied in January by the UK’s financial watchdog, the Financial Conduct Authority (FCA).
The UK watchdog said Standard Bank failed “to take reasonable care to ensure that all aspects of its antimoney-laundering policies were applied appropriately and consistently in relation to corporate customers connected to politically exposed persons (PEPs)”.
In particular, the FCA cited Standard Bank’s decision to classify as “medium risk” two customers who were involved in mining precious metals in “high-risk” jurisdictions and were connected to PEPs.
“Despite these high risk factors, [these customers] had been identified as medium risk,” it said.
But in contrast to the British watchdog’s detailed 26-page account of Standard Bank’s transgressions, the Reserve Bank’s account of the four transgressions was a comparatively anaemic two-page statement.
The bank said only that the four major banks had been nabbed for deficiencies in identifying and verifying customers’ details.
It also revealed that the controls and systems at Standard Bank and Nedbank for detecting property associated with terrorists were found to be deficient.
Nedbank was fined R25-million, FirstRand R30-million and Absa R10million.
Industry sources said that the fines followed inspections undertaken by the FIC last year.
One banker said that the moneylaundering laws “provide for a fairly detailed process of engagement with the FIC, which involves an inspection, a finding, a tribunal hearing to determine the details of the sanction and the setting of a time frame for the banks to address the FIC’s concerns”.
But he stressed that this process began long before the UK watchdog announced its charge against Standard Bank this year — so it was not just a kneejerk reaction to the fact that another regulator was taking action against a South African bank while our local regulator twiddled its thumbs.
However, there’s little doubt that the Reserve Bank is now following a more active line of engagement with banks, in line with that being pursued by other countries.
South Africa’s FIC does say that it “works closely with its counterparts on the African continent as well as with international organisations”.
However, neither the Reserve Bank nor the FIC would clarify exactly what the banks had done wrong.
In a media statement, the FIC’s director, Murray Michell, said only that “the compliance measures imposed by the FIC are in place to support our financial system and to create barriers to prevent criminals from exploiting institutions such as banks”.
“Accountable institutions have the responsibility to ensure that their systems are watertight and maintain the highest levels of integrity,” said Michell.
The money-laundering watchdog’s annual report for 2012-13 illustrates the challenge that it faces in policing these laws.
The 21 866 accountable and reporting institutions now registered with the FIC include banks, finance houses and other companies that handle payments.
In all, 147 744 “suspicious transaction reports” were filed with the FIC that year, and almost R1.2-billion in cash was recovered from the proceeds of crime.