Why it matters: Averting what could have been a bruising battle with wide-ranging implications in the world of financial consulting, on August 18, 2015, the New York Department of Financial Services announced that it had reached a settlement with prominent consulting firm Promontory Financial Group after a two-year investigation into regulatory compliance work the firm had conducted for Standard Chartered Bank. As part of the settlement, the consulting firm must pay a penalty of $15 million and refrain from conducting business with New York State-licensed banks for a period of six months.
Detailed discussion: On August 18, 2015, the New York Department of Financial Services (DFS) announced that it had reached a settlement with consulting firm Promontory Financial Group, LLC (Promontory) over regulatory compliance work Promontory had conducted for British financial institution Standard Chartered Bank (Standard Chartered). As part of the settlement, Promontory agreed to pay a penalty of $15 million and, in what many consider to be a draconian measure, refrain from taking new consulting engagements with New York State-licensed banks for a period of six months.
The settlement agreement contains a statement of the basic facts of the case: In 2009, Standard Chartered retained Promontory to conduct a “historical transaction review” to identify transactions facilitated by the bank that involved countries or entities subject to U.S. sanctions. Throughout 2010 and 2011, Promontory provided numerous reports and presentations about these transactions to DFS’s predecessor agency. In connection therewith, DFS initiated an investigation into Promontory on September 24, 2013. Almost two years later, on August 3, 2015, DFS issued a “Report of Investigation” which found that “Promontory exhibited a lack of independent judgment in the preparation and submission of certain reports to the Department in 2010-2011. Furthermore, certain testimony regarding key issues provided by the Promontory witnesses during the course of the Department’s investigation lacked credibility.” As a result, DFS imposed a punishment that effectively suspended Promontory from conducting business with all New York State-licensed banks “until further notice.” After much contentious back-and-forth and threats of litigation between the parties in the weeks following the Report of Investigation’s release—largely played out in the financial press—the announcement of the August 18 settlement between Promontory and DFS took many by surprise.
Under the settlement agreement, in addition to the $15 million penalty and six-month suspension referred to above, Promontory was required to admit that “in certain circumstances,” its actions with respect to Standard Chartered “did not meet the [DFS’s] current requirements for consultants performing regulatory compliance work for entities supervised by the DFS.” Moreover, Promontory acknowledged that “any report it submits to the Department must be objective and reflect its best independent judgment,” and agreed that “[i]n all pending and future matters in which it or its client submits a report to the Department, Promontory will document any changes to such a report that it makes at the suggestion of a client or the client’s counsel.”
Anthony J. Albanese, Acting Superintendent of Financial Services for the State of New York, said of the settlement that “[w]e 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.”
Click here to read the 8/18/15 DFS press release titled “Statement by Acting New York Superintendent of Financial Services Anthony J. Albanese on Agreement with Promontory Financial Group, LLC.”
Click here to read the 8/18/15 Settlement Agreement between Promontory Financial Group, LLC, and the New York Department of Financial Services.
Click here to read the “Report of Investigation of Promontory Financial Group, LLC” issued by the New York Department of Financial Services on 8/3/15.