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Citi Slapped With GBP43.9M Fine for Reporting Discrepancies

Zacks Equity Research

Citigroup C recently got embroiled in legal issues related to its reporting to regulators. The Wall Street biggie has been penalized by the Prudential Regulation Authority (PRA), the Bank of England’s (BoE) banking supervisory arm, for inaccurate reporting to regulators related to its capital and liquidity levels for years. The penalty amount comes in at 43.9 million pounds ($57 million).


A combined financial penalty has been imposed on Citigroup Global Markets Limited (CGML), Citibank N.A. London branch (CBNA London) and Citibank Europe Plc UK branch (CEP UK), the three U.K. units of Citigroup accusing for internal controls and governance arrangements failure. Per PRA, compliance issues with PRA regulatory reporting requirements existed.

Specifically, between June 2014 and 31 December 2018, units of Citigroup failed to comply with the U.K. regulatory reporting framework effectively. Following such flaws in the systems, incomplete and inaccurate regulatory returns have been submitted to the PRA. The errors had “material or potentially material impact on the returns,” according to the PRA.

Sam Woods, deputy governor for Prudential Regulation and chief executive officer of the PRA said, “Accurate regulatory returns from firms are vital for the PRA in fulfilling our role. Citi failed to deliver accurate returns and failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank.”

Though London-based regulatory teams were responsible for validation of the reports, Citigroup’s units’ heavy reliance on employees in Budapest and Mumbai for preparing those led to such failures. Notably, the bank’s own management control assessments were of the view that these teams needed “very close monitoring.”

"While Citi remained in surplus to its liquidity and capital requirements at all times, the failings persisted over a significant length of time and were serious and widespread in nature," the BoE said.

PRA cited several issues, including manual preparation of reports; ambiguity over the quality of the data used; the bank’s systems failure leading to usage of incorrect currency for some positions settlement and heavy reliability on a single individual in Budapest for managing some of the reports.

“Citi has fully remediated the past regulatory reporting issues identified by the PRA, and settled this matter at the earliest possible opportunity,” Citigroup said in a statement. "Citi co-operated fully with the PRA throughout the process, and in 2019 a leading independent accountancy and audit firm confirmed that Citi had remediated the material issues identified," further noted the bank.

Citigroup’s co-operation in resolving this matter has reduced the fine imposed by the PRA by 30%. Else, the penalty amount would have summed £62.7 million.

Bottom Line

Heightened investigations surrounding banks’ regulatory reportings reflect regulators’ efforts to bring transparency and stability in the industry.

Though Citigroup has undertaken special measures to combat the rise in expenses, persistent litigation issues might be a headwind for the company in the forthcoming quarters.

Shares of Citigroup have gained around 18.3% over the past six months compared with 19.1% growth recorded by the industry. Citigroup currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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