TD Bank: Remediation and Accountability

Today let’s return to the compliance debacle at TD Bank. By now you probably know the bank pleaded guilty to running a terrible anti-money laundering compliance program and must pay $3 billion in penalties for its misconduct. Let’s move on to the next question: how will regulators assure that TD Bank improves its compliance program? 

Those steps are described in the consent decree that TD Bank reached with the Office of the Comptroller of the Currency, one of the many federal regulators involved in the settlement. Compliance officers (especially those of you in banking) should give the document a close read, since it provides a fascinating glimpse into how regulators will try to force an organization to deliver on its promises of better performance.

As usual, remediation is supposed to begin with the board. TD Bank’s board must establish a new compliance committee of at least three members, the majority of them independent from management. That committee will then be responsible for assuring that TD implements an effective AML compliance program in accordance with the rest of the OCC’s order.

remediationTD must also draft an “action plan” by mid-February that describes how the bank will improve its AML compliance program. The plan must include specific corrective actions TD plans to take, timelines for when those actions will happen, and the person (or persons) who will be responsible for completing those actions. Management must then make quarterly reports to the board that list all the corrective actions taken and which ones remain outstanding.

Board oversight, action plan, progress reports — so far, none of that is news; OCC orders routinely require those things. What’s interesting is how the board must review the action plan and ensuing progress reports, and how those reviews could then become a mechanism for OCC to hold the board more accountable for TD’s compliance program improvements. 

Consultant, Asset Caps, and More

To understand the mechanism for greater board accountability that OCC is trying to build here, we first need to step back and consider a few other provisions OCC imposed on TD Bank.

For starters, OCC also ordered TD Bank to hire an independent consultant, who will conduct an end-to-end review of the bank’s AML compliance program right now. The consultant will compile a report on the state of the program, including recommended improvements he or she believes TD should make. Copies of that report will go to the board and OCC; and any recommended improvements will go into the action plan. 

Second, OCC also imposed a freeze on TD Bank’s total assets. The bank is not allowed to grow its assets beyond $434 billion, the total assets it had on Sept. 30. That freeze remains in place until TD Bank completes the overhaul of its compliance program and OCC gives formal blessing to lift the cap.

Even worse, if TD Bank doesn’t complete all those reforms under the timeline of that action plan, OCC can then tighten that asset cap by another 7 percent — and for every year that TD still doesn’t complete its reforms, OCC can tighten the cap by another 7 percent. 

Now think about how all this fits together:

  1. TD Bank’s board creates a dedicated compliance committee. 
  2. TD Bank drafts an action plan by February 2025, which must be approved by the board and OCC.
  3. That action plan must specify specific corrective actions and deadlines for completion. 
  4. An independent consultant must also review TD’s compliance program, and his or her recommendations must also go into the action plan.
  5. Management must make quarterly progress reports to the board on what has or hasn’t been done; and copies of those reports must go to OCC examiners as well.
  6. Every year, the board must review the overall adequacy of the action plan, and amend it as necessary or as directed by OCC.
  7. If the bank doesn’t implement its compliance program improvements according to the timeline of the board- and OCC-approved action plan, OCC can tighten the asset cap by another 7 percent.
  8. OCC can keep tightening the asset cap in 7 percent increments annually after that.

In other words, OCC is forcing the board to adopt a clear, precise plan for compliance program improvements; and then to receive regular updates on what is or isn’t being done. If the improvements don’t get done in a timely manner, the choke-collar otherwise known as an asset cap gets progressively tighter. 

That’s the big picture here. That’s how OCC is trying to compel TD to move quickly, rather than endure a repeat of the klutzy foot-dragging going on over at Citibank — still struggling to implement promised compliance reforms four years after a $400 million enforcement action, where OCC got so exasperated it slapped Citi with another $137 million in fines earlier this summer. 

Even More Remediation Pressure

OCC includes other mechanisms to pressure the board and management, too. For example, any time the bank wants to pay dividends, repurchase shares, or make any other distribution of capital to shareholders, the board must first certify to OCC that management has allocated sufficient staffing and resources to the compliance program and its necessary improvements

This isn’t a one-and-done exercise, where TD’s board rubber-stamps a certification and then gets to pay dividends as long as it likes; the board must certify adequate compliance spending before each individual decision to pay dividends or buy back shares. The certification itself must include:

  • A detailed description of, and justification, for TD’s current allocation of compliance resources; 
  • A detailed description of the bank’s progress on satisfying the remediation outlined in the action plan; and 
  • Whether the bank anticipates increasing or decreasing resources allocated for the remediation.

In essence, this is another way for OCC to force the board to pay attention to compliance program resources quarter after quarter. It’s another way to document the improvements that TD Bank makes or doesn’t make, and to hold the board accountable for those promised improvements. 

The true question, of course, is whether OCC will have the testicular fortitude to hold TD accountable; and whether TD’s board will do the same with bank management and the chief compliance officer. 

TD has taken numerous actions to show that it gets the message now. For example, it hired new AML compliance leaders and hired more than 700 AML compliance specialists. It also established that dedicated compliance committee and implemented new AML compliance technology. There’s still more work to do for better training, stronger internal controls, and more rigorous suspicious activity reporting; but things are happening. 

Will all that be enough? We’ll see.

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