Standard Chartered is set to cut banking services to most of its small and medium enterprise (SME) customers in the UAE after it was sanctioned by financial authorities in the United States for failing to do enough to flag up potential high-risk transactions originating from its UAE branches.
The New York State Department of Financial Services (DFS) said on Tuesday that Standard Chartered had agreed to a US$300 million (Dh1.1bn) settlement and a series of remedial measures after an independent monitoring regime judged that the bank had failed to identify a large number of potentially high-risk transactions for further review.
“A significant number” of the potentially high-risk transactions originated from the bank’s branches in the UAE and its subsidiary in Hong Kong, said the DFS.
Standard Chartered said yesterday that it planned to exit the SME sector in the UAE after its settlement with the DFS mandated enhanced monitoring for such clients.
“The group is seeking to exit this business as part of its broader efforts to sharpen its strategic focus, withdrawing from or realigning non-strategic businesses, including those where increased regulatory costs and risks undermine their economic viability,” the bank said.
Standard Chartered's UAE operation has 90 days to exit its high-risk SME clients.
If it has not dropped them within 90 days, the bank will suspend US dollar clearing through SCB NY for those clients.
A select number of low-risk, higher return clients will be retained by Standard Chartered and reclassified as “commercial clients”, said a spokesman.
The move also comes as Standard Chartered struggles to compete for business in the SME sector in the wake of generous services offered by local banks.
The bank insisted that its other business lines in the country would not be affected.
“The UAE remains one of Standard Chartered’s leading franchises globally, and the move does not reflect a decreased focus on the country. Rather, it will allow the bank to reposition itself for further growth by focusing its efforts on corporate and institutional, commercial, private banking, retail and Islamic banking,” it said.
The $300m settlement agreement comes nearly two years to the day after Standard Chartered agreed to pay a $340m fine to the DFS, which charged the bank with working with Iranian companies and banks for nearly a decade to hide nearly 60,000 transactions worth $250 billion.
The DFS noted that while Standard Chartered had subsequently created a rule book with procedures to aid it in detecting high-risk transactions, it contained numerous errors and that its transaction monitoring system had been inadequately tested.
“If a bank fails to live up to its commitments, there should be consequences,” said Benjamin Lawsky, the superintendent of financial services at the DFS.
“That is particularly true in an area as serious as anti-money-laundering compliance, which is vital to helping prevent terrorism and vile human rights abuses.”
Other remedial steps agreed to by Standard Chartered include the suspension of dollar-clearing operations for high-risk retail business clients in Hong Kong, further enhancements to its due-diligence and know-your-customer requirements for its dollar-clearing operations, and a further two years of monitoring by DFS’s independent monitor.
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