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Moving From The Duplicative Fines Of The Financial Crisis

Neil Bloomfield
June 2018

President Donald Trump promised to "get rid of the redundancy and duplication that wastes your time and your money.”[1] One way the Trump administration may be keeping this promise is by eliminating the uncoordinated and duplicative investigations and fines by multiple federal regulatory authorities that many financial institutions experienced coming out of the financial crisis. This shift began with an announcement by the U.S. Department of Justice and is spreading to federal regulators.

On May 11, 2018, Commissioner Hester Peirce of the U.S. Securities and Exchange Commission, a Trump nominee, announced that the SEC will no longer follow a “broken windows” approach to enforcement where it punishes all violations, from minor to major, to send the message that the SEC views enforcement seriously.[2] In contrast to the more-is-always-better approach, Commissioner Peirce has committed to focus on bringing only “meaningful” enforcement actions. To foster this policy shift, the SEC “can take into consideration whether other regulatory or criminal authorities are looking at the same conduct.” This approach allows the SEC to conserve resources in situations in which the DOJ, a state, or a foreign regulatory authority is addressing the same conduct. Commissioner Peirce specifically noted that while it may be “nice” to have the SEC’s “name on the press release,” the SEC can “forgo the limelight” if “investors and markets are no better off” based on the SEC’s involvement.

Two days prior to Commissioner Peirce’s announcement, Deputy Attorney General Rod Rosenstein announced a new DOJ enforcement policy aimed at reducing the piling on of penalties and encouraging “coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.”[3] The coordination is aimed at avoiding “disproportionate punishment.” In addition to requiring intra- and inter-agency coordination, DAG Rosenstein’s announcement, which has been added to the U.S. Attorney’s Manual, provides a multifactor test to evaluate whether penalties from multiple authorities would be appropriate.

On June 12, 2018, the Federal Financial Institutions Examination Council took its turn by rescinding an interagency coordination statement from 1997, which was immediately replaced by a new interagency policy statement designed to ensure coordination among the board of governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.[4] The interagency policy statement provides:

  • A federal banking agency will provide notice to the other federal banking agencies when it expects to take an enforcement action;
  • The notification will be provided at the earlier of the federal banking agency’s notice to the regulated institution that it is considering action or when the acting federal banking agency determines it will take action; and
  • If two federal banking agencies are considering bringing an action against the same entity, they should coordinate those actions.

This statement comes on the heels of Jelena McWilliams becoming the chair of the FDIC and was followed by her discussion at the Prudential Regulation Conference, which included a focus on her willingness to revisit existing rules and guidance. While this joint statement by the federal banking agencies is a helpful step forward, unfortunately it does not include the Consumer Financial Protection Bureau.

These pronouncements follow in the wake of criticism of the financial penalties that resulted from governmental investigations arising out of the financial crisis. As demonstrated in the charts below,[5] prior to these promises of coordination, financial institutions at the center of these investigations commonly faced penalties from three or more regulatory authorities across the globe. In none of these circumstances did the government authorities appear to reduce their penalty amounts because of the fines paid to other authorities. This resulted in the piling on of significant fines. For example, five institutions paid more than $1 billion each to settle the foreign exchange investigations and four institutions paid more than $1 billion each to settle the Libor and Euribor investigations.

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