German regulator rebukes Standard Chartered over European operations

Standard Chartered’s European business has serious organisational flaws and must hold extra capital because of the risk this causes, Germany’s financial watchdog BaFin said on Thursday.

BaFin’s public rebuke of Standard Chartered Bank AG is its second within three months. In October, it criticised the bank after a special audit uncovered that its internal organisation did not meet legal requirements.

At the time, BaFin ordered the bank to fix organisational problems without disclosing details of what they were. On Thursday, BaFin said the business in Europe needs to increase its capital buffers because of these problems, again without disclosing any further details.

BaFin declined to comment. Standard Chartered told the Financial Times in a statement that it took “this matter very seriously and [has] already implemented corrective actions to ensure we fulfil all aspects of the remediation within the timeframe set by the regulator,” adding that it was “co-operating fully with BaFin”.

Standard Chartered is headquartered in London and obtained a European banking licence in 2018 so that it could continue to operate in the EU after Brexit.

According to the bank’s website, Frankfurt-based Standard Chartered Bank AG is “the hub for our EU activities”.

According to the entity’s latest annual financial statement, which was audited by EY Germany, it is responsible for clearing all of the lender’s European payments, with fees from payments processing making up the bulk of its income. Standard Chartered Bank AG last year received an unqualified audit from EY.

In December 2021, the UK’s Prudential Regulation Authority fined Standard Chartered £46.6mn and criticised it for “failing to be open and co-operative” with the regulator and for “failings in its regulatory reporting governance and controls”.

The PRA said Standard Chartered had made five errors reporting a liquidity metric between March 2018 and May 2019, which meant the watchdog did not have a reliable overview of its dollar liquidity position, and in one case notified the PRA of the error only after a four-month internal investigation.

BaFin’s intervention is the latest sign that it has become more proactive after it was criticised for its inaction during the Wirecard scandal.

Last month, it threatened to fine Deutsche Bank if it missed deadlines for fixing its money-laundering controls, the latest escalation of a four-year tussle between lender and regulator.