Risk & Compliance

N.Y. Sanctions Bank Consultant Promontory

Two-year investigation finds that Promontory 'exhibited a lack of independent judgment' in assessing allegations against a U.K.-based bank.
Katie Kuehner-HebertAugust 3, 2015
N.Y. Sanctions Bank Consultant Promontory

New York State regulators on Monday effectively barred Promontory Financial Group from working with New York banks suspected of wrongdoing after finding that the prominent consulting firm sanitized a report on misconduct at U.K.-based Standard Chartered.

Promontory, which was founded by former regulators, guides banks through regulatory problems. It was hired by Standard Chartered to conduct an “independent” assessment of allegations that the bank transferred through its New York branch billions of dollars in transactions for Iran and other countries sanctioned by the U.S.

The authorities relied, in part, on Promontory’s presentations when punishing the bank, which in 2012 agreed to pay $667 million to several agencies, including New York’s Department of Financial Services and the U.S. Department of Justice.

But in a scathing report, the Department of Financial Services said a two-year investigation concluded that Promontory “exhibited a lack of independent judgment” in its work for Standard Chartered.

The report said emails obtained by investigators capture ”numerous instances” when Promontory, succumbing to pressure from Standard Chartered, sanitized the bank’s misconduct, either omitting red flags or editing presentations to “tone down” the language.

As a result, the department now plans to deny Promontory access to confidential bank supervisory information effectively preventing it from working with bank clients on regulatory matters — “until further notice.” The ban would apply to regulatory-advisory work with all banks that the department supervises: New York State-chartered banks and foreign banks headquartered in New York.

Promontory said in a statement Monday that the agency’s action was “regulatory overreach” and that it will seek a stay in the New York State Supreme Court.

“We stand behind the integrity of our professionals and the quality of our work, the accuracy of which the order does not dispute,” the statement said.

According to American Banker, the New York regulator has also punished the consultants Deloitte and PwC for lacking independence in their work for banks, “but the move against Promontory is the harshest punishment it has doled out so far against a consultant.”

The New York Times said a court win for Promontory “would potentially loosen the grip that the agency holds over the financial industry, instituting a rare check on its power.”