After using one of its most powerful enforcement tools to crack down on rampant
The Office of the Comptroller of the Currency implemented an
TD also faces more than $3 billion in fines, a litany of new requirements and a mandate to get regulatory signoff before making any significant business movements. Still, Pierre Buhler, managing director for financial services at the consulting firm SSA & Company, said the asset cap is the
"The balance sheet is really the core element of a bank," Buhler said. "The asset cap is a nuclear bomb to control a bank."
But some policy experts question how TD's deficiencies — which resulted in billions of dollars from drug trafficking, human trafficking and other illicit activity flowing through the U.S. financial system — were able to reach the scale that they did.
Karen Petrou, managing partner at Federal Financial Analytics, said the extensive consent order issued by the Financial Crimes Enforcement Network outlined a host of red flags that bank examiners should have detected years ago. Based on enforcement actions from Fincen, the OCC and the Federal Reserve, it is not clear if regulators picked up on the issues before last year. At that point, she said, they had few non-drastic options to choose from.
"Because the banking agencies didn't catch it early, when they could have remonstrated effectively or shut the bank down, they ended up with the 10th largest bank in the country that they were undoubtedly afraid to shut down for potential systemic risks," she said. "They let a bank get away with AML murder by the time it was hauled before the courts, no thanks to the supervisors, from what one could tell."
Enforcement documents make no mention of supervisory notices — often referred to as matters requiring attention, or MRAs; matters requiring immediate attention, or MRIAs; or memoranda of understanding, or MOUs — regarding TD's money-laundering controls. Fincen's order notes that the organization fined the bank and the OCC cited it in 2013 for failing to file suspicious activity reports in 2008 and 2009 related to a Ponzi scheme that was run, in part, through TD accounts. But the issues at the heart of last week's action took place between 2012 and May of this year.
The Fincen action notes that regulators informed TD executives of gaps in the bank's anti-money-laundering framework, but it does not specify when or what those shortcomings were. The bank first
The gaps in TD's AML coverage were substantial, according to regulators. For years, the bank failed to filter "virtually any" domestic transactions processed through the Federal Reserve's Automated Clearinghouse system and it typically did not screen checks. These practices resulted in trillions of dollars flowing through the banking system with almost no AML oversight.
Regulators also highlighted chronic underinvestment in the TD's Bank Secrecy Act and AML compliance programs. The Fincen document noted that top officials in charge of both programs were rewarded for keeping costs "flat." Petrou said these and other practices amounted to "red flags across the battlement" that supervisors should have been able to pick up on easily.
"Absolutely blaring sirens going back 11 years," she said.
In a speech last year, Acting Comptroller Michael Hsu said regulators would turn to growth restrictions for banks that repeatedly fail to respond to supervisory directives. Because such caps hit shareholder profits, he said, they are an effective tool for responding to banks that might otherwise be "
Yet, it is not clear if that was the case for TD. An OCC spokesperson declined to comment on the supervisory actions taken in response to the bank's AML deficiencies over the years. In a statement last week, Hsu noted TD's "persistent prioritization of growth over controls" as the basis for the asset cap, business restrictions and dividend certification.
The asset cap on TD is only the second growth restriction of that magnitude. The first was the Fed's cap on Wells Fargo in 2018, a step taken in response to various consumer protection violations — including the opening of unauthorized accounts — that arose from the bank's troubled cross-selling program. Wells Fargo remains under the cap and though it hopes to have the limitation lifted as soon as next year, there is no set criteria for its removal.
Because of the impact an asset cap can have on banks, Buhler said regulators should establish the terms under which the penalty is applied and terminated.
"They should be much more stringent [with] the rules around it," Buhler said. "It's fine to be punished, but how do I get out of my punishment? On what conditions exactly? Those definitions are very loose today."
Some consumer advocates say the asset cap has been applied too sparingly in the past. Patrick Woodall, managing director for policy for Americans for Financial Reform, said he hopes the TD case is a sign that regulators are more willing to get aggressive with bad actors.
"The real question is what the regulators are willing to do to demonstrate that banks that engage in repeated wrongdoing are simply too big to manage," Woodall said. "The regulators have maintained the asset cap on Wells Fargo for a very good reason, namely its long record of malfeasance and wrongdoing. Other banks have violated the law again and again without regulators ever even considering an asset cap. Regulators need to keep this arrow in their quiver, and show that they are willing to use it to change bank behavior."
