The Prudential Regulation Authority (PRA) has imposed a financial penalty on Standard Chartered Bank (SCB) of £46.55 million for failing to be open and cooperative with the PRA and for failings in its regulatory reporting governance and controls in relation to a tailored PRA liquidity expectation. This is the PRA’s highest ever fine in a PRA-only enforcement case.
In October 2017, the PRA imposed a temporary additional liquidity expectation on SCB in response to concerns about heightened risk of USD liquidity outflows (“the liquidity metric”). This temporary expectation has now been removed. While SCB’s overall liquidity position remained in surplus to its core liquidity requirements, between March 2018 and May 2019, SCB made five errors reporting the liquidity metric which meant the PRA did not have a reliable overview of its USD liquidity position.
In relation to one of the misreporting errors, SCB only notified the PRA of the error after a four-month internal investigation into the issue. SCB’s identification of this issue was information which the PRA reasonably expected to be notified about promptly. By this delay in giving due notice to the PRA, SCB failed to be open and cooperative in breach of Fundamental Rule 7.
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA said:
“We expect firms to notify us promptly of any material issues with their regulatory reporting, which Standard Chartered failed to do in this case. Standard Chartered’s systems, controls and oversight fell significantly below the standards we expect of a systemically important bank, and this is reflected in the size of the fine in this case.”
The PRA’s investigation identified that SCB’s internal controls and governance arrangements underpinning its regulatory reporting in relation to the liquidity metric were not implemented or operating effectively. These issues contributed to SCB’s liquidity miscalculations and misreporting and also to the failure to be open and cooperative with the PRA.
The investigation found that SCB failed to:
promptly notify the PRA of one of the miscalculation and misreporting errors, despite having multiple opportunities to do so;
ensure that its escalation framework for liquidity miscalculations and misreporting was properly embedded within the relevant business area;
implement a documented policy setting out when liquidity errors or potential liquidity errors should be notified to the PRA;
maintain and operate adequate controls testing and checks for reporting the liquidity metric;
ensure that it had appropriate human resources to investigate potential misreporting of the liquidity metric.
As a result, SCB breached Fundamental Rule 6 and Fundamental Rule 7 of the PRA Rulebook. Fundamental Rule 6 requires that a firm organise and control its affairs responsibly and effectively. Fundamental Rule 7 requires that a firm be open and cooperative with the regulator.
SCB agreed to resolve this matter and therefore qualified for a 30% reduction in the fine imposed by the PRA. Without this discount, the fine imposed by the PRA would have been £66,500,000.
