Deloitte has agreed to a one-year suspension from providing consulting work to hundreds of financial institutions and will pay $10 million to New York state in an unparalleled crackdown on independent consulting firms.
New York’s Department of Financial Services cited Deloitte’s “misconduct, violations of law, and lack of autonomy” in its review of anti-money laundering practices at Standard Chartered.
"At times, the consulting industry has been infected by an 'I'll scratch your back if you scratch mine' culture and stunning lack of independence," said Ben Lawsky, superintendent of DFS.
He added that the regulator’s work “investigating and reforming the consulting industry is far from over”.
Mr Lawsky said that the Deloitte deal was a model that DFS intended to use to govern other independent consultants, an area he identified this year as a “vital concern to DFS”. It comes amid broader scrutiny of consulting firms’ independence.
Oversight gaps
US lawmakers have held hearings examining the role of independent consultants while a report by the Government Accountability Office found gaps in federal bank regulators' oversight of consultants involved in foreclosure reviews.
Under the agreement, Deloitte is required to identify employees at financial institutions who review and comment on the consultant’s work and disclose any key disagreements.
Regulatory template
DFS said that it was a model "that will govern all independent consulting firms" and said that it could "potentially serve as a template" for other regulators.
Deloitte said that it “looks forward to working constructively with DFS to establish best practices and procedures that are ultimately intended to become the industry standard for all independent consulting engagements under DFS supervision”.
It is not clear how the suspension will affect the consulting firm. Hundreds of banks, insurance companies and mortgage service providers are registered with DFS.
DFS is using its authority under a state banking law to revoke consultants’ access to confidential supervisory data if the access does not “serve the ends of justice and the public advantage”.
Sanctions violations
DFS fined StanChart $340 million last year to settle allegations that the UK bank hid from regulators key details involving at least $250 billion in deals with Iran and potentially violated US sanctions policy.
In DFS’s settlement with StanChart, it alleged that Deloitte “aided” the bank’s “deception” in hiding transactions linked to Iran.
Deloitte removed from a report filed with the state regulator a recommendation aimed at rooting out money laundering. In an email cited in the deal, a Deloitte partner said: “‘[We] agreed’ to [StanChart’s] request because ‘this is too much and too politically sensitive for both [StanChart] and Deloitte. That is why I drafted the watered-down version’.”
(Copyright The Financial Times Limited 2013)
