Yesterday an important thing hit the financial markets. ABN AMRO announced in a press release that it was sanctioned principally in connection with deficiencies in the US dollar clearing operations at its New York branch and violations of the OFAC regulations originating at its branch in Dubai. The regulators involved are a number of US regulators as well as the Dutch bank supervisor (the central bank). They imposed an 80 million dollar fine and ordered ABN AMRO to execute an action programma to improve the internal organisation. To conclude, ABN AMRO countersigned the regulatory measure and promised not to appeal.
Now let us see what's so interesting about this case (see the full document here).
First of all, the incident which is at the basis of the problem, dated before ABN AMRO signed into a previous agreement (July 2004) with US regulators to clear up internal mess. So the order of events is that ABN AMRO was cleaning up internal mess as a result of the agreement with US regualtors to do so. While doing this, they noticed trouble in Dubai and informed the regulator of their finding. And then, the regulator responds with a fine. Now if this were for an incident of later date than July 2004 I would understand, but to do so for events occuring before that date seems to me the wrong way to motivate...
Second, the regulatory measure is a coproduction with the Dutch central bank which is the home bank supervisor. To me this implies that US regulators know that they are on the edge of their competencies. If indeed ABN AMRO could be fined for actions in Dubai in violation of US-regulation; it could also be fined in Russia, Belgium, the Netherlands for that same violation. Similarly, the office in Dubai needs to comply with all banking laws that apply to ABN AMRO internationally (Dutch, local, US, etc). That can't be true. There is a serious conflict of law here, but it has been managed by drawing in the home country supervisor. And as this home country Dutch supervisor was already under public pressure (given that just 2 weeks before a small Dutch bank actually went broke while under supervision), that might explain the willing cooperation of the Dutch central bank in its supervisory role.
Third, also quite interesting, is the fact that ABN AMRO signed the regulatory measure and promised not to appeal. Is this because, after the Fazio case, the supervisors are afraid to be sued by ABN AMRO? Is it because ABN AMRO management wishes this issue to be dealt with properly on the inside; using this external measure as an extended instrument to get internal operations aligned? Or is it because the actual incidents require a decent cover-up? We may well tick either one or all three of the boxex above. The beauty is that we will never know.
Which leaves us with the main question. Are we just looking at an incident which is not representative for the future of supervision or is this a precedent leading us forward into a new regulatory future.
I hope it is the first, but I fear it is the last.
