TD Bank admits its 'plea agreements resulted in one TD entity being disqualified from serving as an investment adviser or underwriter to registered investment companies in the United States.'Sammy Kogan/The Globe and Mail
John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.
The next shoe dropped on Toronto-Dominion Bank’s U.S. anti-money laundering (AML) saga with the release of its 2024 fourth quarter results on Thursday. When it landed it startled markets, dragging TD’s share price down by 7 per cent.
In October TD TD-T, to ensure it did not lose its U.S. bank charter, cut deals with the U.S. Department of Justice and U.S. bank regulators to pay a US$3-billion fine and plead guilty to conspiracy to commit money laundering. The Toronto-based bank’s litany of AML sins were documented in a nearly 100-page U.S. Financial Crimes Enforcement Network consent order.
TD’s chief executive officer Bharat Masrani tried to put a positive spin on TD’s predicament, saying in statement that, “A key development this quarter was the resolution of our U.S. AML matters, bringing important clarity to our stakeholders.” But the clarity TD’s CEO pointed to was not the kind to comfort stakeholders.
The problems TD faces have now been made plain for all to see. It is a worrisome sight.
The bank’s fourth-quarter earnings report is replete with examples of challenges ahead. For instance, TD is now being compelled to jump through new regulatory hoops to hold onto some elements of its U.S. business that have nothing to do with AML.
TD Bank admits its “plea agreements resulted in one TD entity being disqualified from serving as an investment adviser or underwriter to registered investment companies in the United States” and another entity was also disqualified from providing asset management services to certain U.S. employee benefit plans. TD is seeking exemptions for both entities, exemptions that could be challenged if TD fails to remediate its AML weaknesses.
TD Bank is on the regulatory clock. It has a five-year U.S. probationary period that will decide whether it can return to being a growth-orientated, North American bank or if it will have to make do with being a shadow of what generations of TD bankers dreamed it could be. To pass what will be annual tests to determine improvement, TD needs to remake itself from the inside out.
And there is no guarantee it will succeed.
The plan TD has entails overhauling its U.S. AML leadership, strengthening internal oversight and accountability, implementing enhanced standards to better measure the risk of financial crime, improvements to managing cash-intensive clients and deploying new data and technology to better monitor transactions.
The risks preventing success are many, including, reports TD, “the Bank’s ability to attract and retain key employees, the ability of third parties to deliver on their contractual obligations, and the successful development and implementation of required technology solutions.”
Some of these risks seem to be playing out already. Buried deeper in TD’s fourth-quarter earnings report is the admission that the bank is “exceeding internal risk metrics, resulting in additional escalation and monitoring activities within the Bank, including with respect to the Bank’s remediation efforts.”
This is compliance speak suggesting some of TD’s U.S. AML remediation programs are in jeopardy, a problem that if not corrected will exact a heavy price. During the probationary period U.S. regulators can force TD Bank to shrink its U.S. footprint by 7 per cent each year its efforts are deemed deficient.
TD’s fourth-quarter results document the price TD is paying for its U.S. AML failures.
Not only did the bank miss its fourth-quarter earnings goals in large part because of its U.S. AML incompetence, but TD’s management is “suspending” previously announced medium-term financial targets, suggesting that at this time last year TD’s executives did not foresee the extent to which its U.S. AML problems would affect the bank’s earning power in years to come.
For TD, 2025 will be “a transition year” according to its leadership team. Indeed, it will be nothing like any year in the bank’s long and, until now, unblemished history.