Smaller fines not sign of weakness: Goldman

Fines levied by regulators in Asia may be a lot smaller than in the US or UK, but that doesn't mean the region's watchdogs are weak, argues a senior Goldman Sachs executive.
Smaller fines not sign of weakness: Goldman

The far smaller penalties handed out to financial firms in Asia than in the UK and US should not be taken as a sign of weakness, said a Goldman Sachs executive at a recent forum. On the contrary, the likes of Hong Kong are taking a tough line on issues such as money laundering, he noted.

“We don’t see huge fines here in Asia, [but] you shouldn’t form the opinion that perhaps the Asian regulators are not tough,” said Steve Tarrant, Asia-Pacific deputy head for compliance surveillance strategy at Goldman Sachs.

He cited to Japan and Korea, saying that it’s common for regulators in those two countries to shut businesses down if they don’t comply with the rules. Tarrant was speaking at the third annual Compliance Summit Asia, hosted by AsianInvestor sister publication FinanceAsia last week in Hong Kong.

In Hong Kong, the city regulator Securities and Futures Commission (SFC) took disciplinary action against 47 licensees between April 2013 and March 2014, amounting to HK$30.3 million ($4 million), according to its 2013-14 annual report.

This pales in comparison to the situation in the US and UK, where the average penalties are $4.99 million and $12.6 million, respectively, according to a study by compliance consultancy Kinetic Parners.

During 2013-2014, the UK imposed 46 fines for a total of £425 million, while the US saw 755 actions that pulled in a combined $4.16 billion in disgorgement and penalties between October 2013 and September 2014.

The issue of penalty size has been raised by the SFC itself in the past, with Mark Steward, executive director of enforcement. “We do not see the point of enforcement as a number with a row of zeros after it,” he said at a Reuters forum in late October. “The point for us is equity in the market. That can’t be achieved through windfall amounts of money for the government and coffers.”

As anecdotal evidence, Steward had recalled the inability of his regulator peers when quizzed to cite the misconducts behind several large fines slapped on global banks.

“Where the fine is grabbing the headlines rather than the moral sting of misconduct and its consequences on real people, where that real connection is lost, I think we are in danger of going the wrong path,” he added.

Tarrant said one of the biggest focuses of Asian regulators was money laundering, with intergovernmental body the Financial Action Task Force (FATF) set to review anti-money laundering (AML) standards and financing processes across the region. It is expected to visit Hong Kong by March next year and Singapore in December to conduct assessments.

Japan has recently been targeted by the FATF, which said in June that the country was not effectively tackling the problems around AML. The FATF noted that terrorism had not been criminalised and the financial industry lacked certain customer due-diligence requirements and had incomplete mechanisms for freezing assets.

“The [Hong Kong Monetary Authority] is pushing very heavily in Hong Kong [telling financial institutions to] get senior management on board involved in AML,” said Tarrant. “It was only last year that the HKMA got all the CEOs of all the banks and told them that they are not doing enough on money laundering and they ought to do more.

“If you are in AML, [with] internal audit, external auditors, regulators sending you questionnaires and coming in doing inspections, you’re probably the most checked and audited section of any financial institution these days,” he said.

But one bottleneck preventing financial companies from doing more on AML is the lack of suitable candidates for the job, noted Tarrant. He recalled being horrified in interviews by the inability of some candidates when asked to describe their firm’s own AML functions.

On top of this, there is the ability to hire and retain talent by non-bank financial institutions. Wesley Tam, Asia head of anti-money laundering at insurer Prudential, noted on the same panel that insurers will always find it difficult to compete with banks’ deeper pockets.

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