RBS 2012 Annual Report Download - page 463

RBS GROUP 2012
461
Other investigations
On 27 July 2011, the Group agreed with the Board of Governors of the
Federal Reserve System, the New York State Banking Department, the
Connecticut Department of Banking, and the Illinois Department of
Financial and Professional Regulation to enter into a consent Cease and
Desist Order (the Order) to address deficiencies related to governance,
risk management and compliance systems and controls in RBS plc and
RBS N.V. branches. In the Order, the Group agreed to create the
following written plans or programmes:
x a plan to strengthen board and senior management oversight of the
corporate governance, management, risk management, and
operations of the Group’s U.S. operations on an enterprise-wide and
business line basis,
x an enterprise-wide risk management programme for the Group’s
U.S. operations,
x a plan to oversee compliance by the Group’s U.S. operations with all
applicable U.S. laws, rules, regulations, and supervisory guidance,
x a Bank Secrecy Act/anti-money laundering compliance programme
for the RBS plc and RBS N.V. branches in the U.S. (the U.S.
Branches) on a consolidated basis,
x a plan to improve the U.S. Branches’ compliance with all applicable
provisions of the Bank Secrecy Act and its rules and regulations as
well as the requirements of Regulation K of the Federal Reserve,
x a customer due diligence programme designed to reasonably
ensure the identification and timely, accurate, and complete
reporting by the U.S. Branches of all known or suspected violations
of law or suspicious transactions to law enforcement and
supervisory authorities, as required by applicable suspicious activity
reporting laws and regulations, and
x a plan designed to enhance the U.S. Branches’ compliance with
OFAC requirements.
The Order (which is publicly available) identified specific items to be
addressed, considered, and included in each proposed plan or
programme. The Group also agreed in the Order to adopt and implement
the plans and programmes after approval by the regulators, to fully
comply with the plans and programmes thereafter, and to submit to the
regulators periodic written progress reports regarding compliance with the
Order. The Group has created, submitted, and adopted plans and/or
programmes to address each of the areas identified above. In connection
with the Group's efforts to implement these plans and programmes, it
has, among other things, made investments in technology, hired and
trained additional personnel, and revised compliance, risk management,
and other policies and procedures for the Group's U.S. operations. The
Group continues to test the effectiveness of the remediation efforts
undertaken by the Group to ensure they are sustainable and meet
regulators' expectations. Furthermore, the Group continues to work
closely with the regulators in its efforts to fulfil its obligations under the
Order, which will remain in effect until terminated by the regulators.
The Group’s operations include businesses outside the United States that
are responsible for processing US dollar payments. The Group has been
conducting a review of its policies, procedures and practices in respect of
such payments, has voluntarily made disclosures to US and UK
authorities with respect to its historical compliance with US economic
sanctions regulations, and is continuing to co-operate with related
investigations by government authorities. The Group has also, over time,
enhanced its relevant systems and controls. Further, the Group has
initiated disciplinary proceedings against a number of its employees as a
result of its investigation into employee conduct relating to this matter.
Although the Group cannot currently determine the outcome of its
discussions with the relevant authorities, the investigation costs,
remediation required or liability incurred could have a material adverse
effect on the Group’s net assets, operating results or cash flows in any
particular period.
The Group may become subject to formal and informal supervisory
actions and may be required by its US banking supervisors to take further
actions and implement additional remedial measures with respect to
these and additional matters. The Group's activities in the United States
may be subject to significant limitations and/or conditions.
In March 2008, the Group was advised by the SEC that it had
commenced a non-public, formal investigation relating to the Group’s
United States sub-prime securities exposures and United States
residential mortgage exposures. In September 2012, SEC staff
communicated that it had completed this investigation as to RBS and that
it did not, as of the date of that communication and based upon the
information then in its possession, intend to recommend any enforcement
action against RBS. In December 2010, the SEC contacted the Group
and indicated that it would also examine valuations of various RBS N.V.
structured products, including CDOs. In March 2012, the SEC
communicated to the Group that it had completed this investigation and
that it did not, as of the date of that communication and based upon the
information then in its possession, intend to recommend any enforcement
action against RBS.