Rohit Chopra, former director of the Consumer Financial Protection Bureau, says U.S. bank regulators and the Department of Justice could have hit TD with even more severe penalties.Michael A. McCoy/Getty Images
Toronto-Dominion Bank TD-T could have lost its licence to operate in the U.S. after it pleaded guilty to committing money laundering last year, a former top U.S. consumer finance regulator says, warning the country is easing up on financial-sector enforcement measures.
Rohit Chopra, who was fired as head of the Consumer Financial Protection Bureau (CFPB) by President Donald Trump in February, said U.S. bank regulators and the Department of Justice (DOJ) could have hit TD with penalties even more severe than the rarely applied restrictions that were imposed in October.
Mr. Chopra spoke in an exclusive interview with The Globe and Mail on Tuesday, two weeks after U.S. regulators lifted a long-standing asset cap on Wells Fargo – a significant penalty that was also applied on TD last year, limiting the growth of its U.S. retail unit.
In October, TD pleaded guilty to conspiracy to commit money laundering and agreed to pay more than US$3-billion and to abide by a suite of severe non-monetary penalties.
TD shareholders confront bank leaders about anti-money-laundering failures at AGM
If the bank had been charged with money-laundering rather than conspiracy to commit the crime, that would have triggered a subsequent proceeding to explore terminating TD’s bank charter under U.S. law. But in the way the settlement was “sculpted,” the bank avoided facing that proceeding, Mr. Chopra said.
“There was criticism about the U.S. settlement because, instead of charging the bank with that criminal act, there was some legal language to skirt the requirement that the termination proceeding go forward,” he said, stopping short of arguing for or against the measure.
“Such a severe violation of law on consumers with the illegal tarnishing of credit reports, as well as the criminal money laundering – that does warrant very significant sanctions. I am concerned that the sanctions that were put in place may not have enough teeth.”
Late last year, U.S. Senator Elizabeth Warren sent a letter to the DOJ saying that prosecutors allowed TD to evade criminal charges that would have triggered a bank “death penalty” provision. That term provides the Office of the Comptroller of the Currency with the authority to revoke a lender’s charter, forcing it to end its U.S. operations.
Mr. Chopra said TD’s weak systems, board oversight and senior management contributed to the failings, and that there should be stricter rules against allowing the those responsible for these types of failures from taking on new roles at other financial institutions.
Since regulators levied the penalties, TD is investing in remediating its anti-money-laundering gaps to meet U.S. regulatory requirements.
“We have renewed our board, announced the chair’s pending retirement, and are being led by a new CEO known for his ability to drive change,” TD spokesperson Lisa Hodgins said in an e-mail statement. “Our focus is on the future as we remediate our AML program and build the bank of tomorrow.”
The CFPB, an independent government agency that oversees consumer protection in the financial sector, in September levied US$28-million in penalties against TD for sharing inaccurate information about its clients with credit reporting agencies.
At the time, Mr. Chopra said regulators would need to “focus major attention” on the bank to ensure it would fix the issues.
Opinion: The delayed and delicate departures at TD reveal a bank struggling to do the right thing
Since then, Mr. Trump’s administration has ousted several heads of regulatory agencies, as the organizations shift focus to undoing the policies implemented in recent years. At the CFPB, all activity has been halted, and staff have been fired en masse.
Mr. Chopra warned that the pivot could diminish enforcement measures.
“I have a feeling that the new regulators in the U.S. will just rubber stamp anything that is out in front of them,” Mr. Chopra said Tuesday during an earlier session at the Open Banking Expo in Toronto.
One of the most severe penalties levied on TD is a rarely used asset cap that limits growth in its key U.S. retail business.
Earlier this month, U.S.-based Wells Fargo was released from a seven-year-long US$1.95-trillion cap on its assets. JP Morgan’s chief executive officer, Jamie Dimon, called the penalty “grossly unfair.”
But Mr. Chopra said in the interview that the asset cap on Wells Fargo was lifted too early given the severity of its infractions. In 2018, the U.S. Federal Reserve levied the asset cap after a series of missteps by the bank, including a scandal in which employees opened millions of unauthorized customer accounts.
“Eliminating the asset cap could be sending the wrong message,” he said.
In recent years, the biggest U.S. banks have ramped up lobbying efforts against regulatory changes, including open banking and higher capital requirements.
“I’m not sure that we should ever be taking cues from Jamie Dimon on how to oversee our regulatory system,” Mr. Chopra said at the expo.
Since the revelations on TD’s AML breaches, there have been no public enforcement actions from Canadian regulators. Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, has said it is restricted from discussing supervisory matters on individual banks.
Enforcement in Canada’s financial regulatory system is more muted than that of its American counterparts. Early last year, the Financial Transactions and Reports Analysis Centre of Canada, the country’s financial crimes watchdog, levied a $9-million penalty on TD – its biggest monetary penalty on record. But it pales in comparison to the larger fines in the U.S.
“Public trust can be undermined when enforcement over financial institutions is too secretive,” Mr. Chopra said in the interview. “Across the world, a lot of issues are resolved with financial institutions confidentially. We need to rethink some of that when it comes to severe violations of the law.”
In October, the CFPB introduced new rules that usher in an open banking regime. A banking lobby opposed the changes, claiming that customer data would be compromised and that the agency overstepped its legal powers.
Since Mr. Chopra’s departure, the CFPB has done an about-face and is attempting to have the changes abandoned in court.
“We have to create not only the regulatory piece, but also the reputation and competitive pressure on big incumbents to participate,” Mr. Chopra said at the expo. “They will find all sorts of ways to sabotage, but we will need to continue to push.”
The creation and implementation of Canada’s open banking regime has faced several delays in recent years. Mr. Chopra said Canada should attract talent from the U.S. to implement new banking technology.