Sunday, 3 March 2024

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Citi hit by new Fed rebuke, setbacks on consent orders

Citi hit by new Fed rebuke, setbacks on consent orders

U.S. regulators have asked Citigroup for urgent changes to the way it measures default risk of its trading partners and the bank’s own auditors have found a plan to improve internal oversight to be lacking, developments that could hinder CEO Jane Fraser’s plans to revive the bank’s fortunes.

Late last year, the Federal Reserve sent Citi three notices directing the bank to address in the coming months how it measures risk of default by counterparties in derivative transactions, a source with direct knowledge of the matter said.

Separately, Citi’s internal audit unit said more work was needed in at least one instance to address problems previously raised by regulators, according to an email seen by Reuters. The work was in response to enforcement actions, called consent orders, that date back to October 2020.

In December, the internal audit unit found some of the work done to improve risk management across the bank to be inadequate, according to the email. The audit unit also found that Citi failed to meet a requirement that it have procedures in place to ensure the board and senior management receive comprehensive reports about risks across the company, the email showed.

Another banking regulator, the Office of the Comptroller of the Currency, also conducted exams in September and October to assess whether Citi had made as much progress on data integrity as it claimed, a source with direct knowledge of the matter said, requesting anonymity to discuss confidential information. Citi failed those exams, forcing it to do additional work, the source said.

The regulatory notices come as the bank works through two 2020 consent orders, in which the Fed and the OCC directed the bank to fix longstanding and widespread deficiencies in its risk management, data governance and internal controls. The enforcement actions followed Citi’s botched transfer of about $500 million to lenders of cosmetics firm Revlon in 2020. Citi has thousands of employees focused on resolving these issues.

The notices from the Fed and the problems with the separate work around the consent orders have not been previously reported. Reuters could not determine the impact these issues have had on Citi’s overall efforts to resolve its regulatory problems.

The new details provide insight into the complexity of the task facing CEO Fraser as she carries out the bank’s biggest overhaul in decades to boost profits and shares, which have lagged peers. The third-largest U.S. lender has been selling…

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