US Regulators to Reprimand Citigroup Over Risk Management

The Federal Reserve and OCC are expected to require Citigroup to develop and execute a plan to improve its risk management systems.

The US Federal Reserve and OCC (Office of the Comptroller of the Currency) are preparing to reprimand Citigroup for failing to improve its risk management systems, according to the Wall Street Journal.

A consent order would likely require Citigroup to develop and execute a plan to fix its risk systems; it is not clear if any fines or stricter oversight measures will be imposed. Over several years, regulators have privately asked the bank to improve its risk management systems, but these requests haven’t had the desired effect.

Citigroup’s shortcomings were thrown into the spotlight in August when it accidentally sent USD 900 million to a set of creditors for cosmetics company Revlon. The bank has attributed the mistake to “manual steps” taken in its loan processing system.

While regulators have not asked Citigroup chief executive Michael Corbat to step down, the expected rebuke is accelerating his retirement to February. Corbat believes an expensive, multiyear systems overhaul required to address regulators’ concerns was best left in the hands of his successor, Jane Fraser.

“We are completely committed to improving our risk and control environment,” a Citigroup spokeswoman said, citing the bank’s efforts to strengthen controls, infrastructure and governance. “However, while we have made significant and demonstrable progress in each of these areas, we recognise that we are not yet where we need to be and that has to change.”

On Monday (14 September), Citigroup CFO Mask Mason outlined steps the bank already has planned to improve its risk management and controls.

This includes implementing a new internal oversight structure, spending more on data and technology to drive automation and reduce manual work, and incorporating a cultural change programme.

According to Mason, the bank has been accelerating its investment in infrastructure and controls, spending more than USD 1 billion so far this year.

“We recognise that errors like this are unacceptable, and we also recognize that eliminating these types of manual touch points is a significant opportunity for us,” he said.