Security & Fraud

Customer Reporting Mishaps Cost Banks Billions

Are Online Digital Banks Poaching Customers?

The biggest investment banks in the world have faced $43 billion in fines over the past several years, and research has shown that among the most significant culprits has been failures in customer reporting, according to recent research.

Financial Times reported that, according to Corlytics, which has tracked $150 billion in fines, cumulatively, racked up by 10 U.S. and European banks, tied to FX rates to money laundering, those fines have been responsible for decimating 14 percent of equity capital that otherwise would have been on the books.

The banks include the marquee names you would likely expect: Barclays, Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley and UBS.

As noted by John Byrne, chief executive officer of Corlytics, the client reporting shortfalls included misleading customers about investments and not communicating effectively with borrowers. That is evidenced, say, by $25 billion paid by banks in the United States in a 2012 settlement that covered abusive foreclosure practices. There was also the $27 billion paid out due to failures in how the banks sold mortgage securities and then another $20 billion paid due to securitization failures. The high water mark in annual penalties came in 2014 with $56 billion in fines paid.

The data, according to the research, shows that the less diversified banks carried relatively lower risk. Thus far, 2015 is showing $10 billion in fines, but that will go up as European banks are on the hook for billions more due to practices and penalties in the wake of how they missold and misrepresented mortgage bonds, FT reported.

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