Regulatory peril is banks’ top governance risk: Fitch

Regulatory enforcement represents the top governance issue at the world’s banks, according to a new report from Fitch Ratings.

The rating agency reviewed over 1,500 reports of “risk events” at banks over the past couple of years — from 2020 through the second quarter of 2022 — which represented 600 meaningful governance failings.

Almost of half of these failings involved regulatory sanctions.

Fitch filtered the issues into several categories, and found that regulatory fines represented “by far the largest category,” ranging from modest sanctions for misconduct such as client overcharging to large fines for major deficiencies in risk management.

Instances of fraud — including tax evasion, bribery and theft — ranked a distant second to regulatory enforcement.

Money laundering and allegations of misconduct against firms’ employees and management were also prominent, Fitch noted, followed by “weak controls” and other “reputational” issues, such as reports of harassment or discrimination.

Fitch said most of these governance issues wouldn’t have an immediate impact on banks’ credit ratings, absent fines or losses that are large enough to impact a bank’s bottom line.

“However, if a governance failing leads to significant reputational damage, or if it is symptomatic of more serious or widespread failings, negative rating actions could follow,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.