Looking At Regulatory Compliance Risks for Banks

Yet another bank in Singapore has fallen because of the tainted Malaysian sovereign wealth fund 1MDB.

Financial industry regulator, the Monetary Authority of Singapore (MAS), had recently made the decision to shut down the Singapore arm of the Switzerland-based Falcon Private Bank over breaches of anti-money laundering regulations in 1MDB-related fund flows. Falcon is the second bank after BSI Bank to lose its banking license in Singapore because of issues linked to 1MDB.

Besides revoking the license of Falcon, the MAS also fined DBS Group Holdings Ltd (SGX: D05) and the Switzerland-based UBS bank a sum of S$1 million and S$1.3 million, respectively.

DBS, Singapore’s largest bank by total assets, made S$2.25 billion in profit in the first-half of 2016. This is clearly much higher than the fine of S$1 million. But, this slap on the wrist is a reminder to investors that banks face regulatory compliance risks.

An extreme example of such risks can be found in Deutsche Bank. Last month, the Department of Justice in the US had levied a massive US$14 billion fine on the German bank for its activities involving mortgage-backed securities from 2005 to 2007.

Deutsche Bank is currently in negotiations for the fine, so the final sum is yet unknown. But, the US$14 billion that the US Department of Justice is looking for comes after the bank has already paid over US$9 billion in fines and settlements since 2008.

Billionaire investor Jim Rogers has speculated that Deutsche Bank could go bankrupt if it is made to pay US$14 billion in fines. And if the bankruptcy happens, it could shake up the global financial industry. A few weeks after news of the fine appeared, around 10 hedge funds with dealings with Deutsche Bank had pulled some of their assets out of the bank.

Deutsche Bank’s woes are an example of how regulators can cause serious problems for a bank.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat owns shares in DBS Group Holdings.