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From Banking and Finance Law Daily, August 18, 2015

Lack of ‘independent judgment’ costs Promontory $15M and moratorium on industry work

By John M. Pachkowski, J.D.

Following the release of an Aug. 3, 2015, report by the New York Department of Financial Services that found Promontory Financial Group, LLC lacked independent judgment in the preparation and submission of reports to the NYDFS in 2010-2011, the agency and Promontory have entered into an agreement to resolve the conduct outlined in the report.

NYDFS report. The report chronicled the results of a two-year investigation by the NYDFS into Promontory’s work for Standard Chartered Bank pertaining to the bank’s compliance with Bank Secrecy Act/Anti-Money Laundering laws and regulations, and sanctions imposed by the Office of Foreign Assets Control. As part of its work, Promontory produced a number of reports and made various presentations to the bank and government authorities, including the NYDFS’ successor, the New York State Banking Department. These reports included interim reports throughout 2010, final reports in January and March of 2011, and updates to those final reports in October 2011.

Beside finding that Promontory lacked independent judgment, the report also found that certain testimony regarding key issues provided by Promontory witnesses during the course of the NYDFS’s investigation lacked credibility. The report also noted that “ends of justice and the public advantage would not be served by providing Promontory with access to confidential supervisory information” (see Banking and Finance Law Daily, Aug. 3, 2015).

NYDFS agreement. Under the terms of the Aug. 18, 2015, agreement, Promontory must:

  • Pay a $15 million monetary penalty and cannot claim any type of tax offset based on the monetary payment.

  • Take a 6-month voluntary abstention from new consulting engagements that require the NYDFS to authorize the disclosure of confidential information under New York Banking Law §36(10).

  • Agree that its actions during the Standard Chartered engagement did not meet the NYDFS’s current requirements for consultants performing regulatory compliance work for entities supervised by the NYDFS.

  • Acknowledge that any report submitted to the NYDFS must be objective and reflect its best independent judgment. Regarding all pending and future matters in which it or its client submits a report to the NYDFS, Promontory will document any changes to such a report that it makes at the suggestion of a client or the client’s counsel.

Working constructively. Commenting on the agreement, Acting Superintendent of Financial Services Anthony J. Albanese said, “We are pleased that Promontory has agreed to resolve this matter and to work constructively with the Department moving forward to help strengthen integrity within the consulting industry. The Department will continue to aggressively investigate and address conflicts of interest at consulting firms, which is a critical part of combating misconduct and improving accountability in the financial markets.”

Quality and integrity. In a brief statement, Eugene Ludwig, the founder and chief executive officer of Promontory Financial Group, said, “We are glad to have resolved this matter.” He added, “We remain committed to quality and integrity in carrying out our work.”

Companies: Promontory Financial Group, LLC; Standard Chartered Bank

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