Regulators Fine Goldman Sachs for Risk Management Failures
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB). The FCA and PRA fines are part of a USD 2.9 billion globally coordinated resolution reached with The Goldman Sachs Group Inc. and its subsidiaries. 1MDB is a Malaysian state-owned development company that has been at the center of billion-dollar embezzlement allegations. Goldman Sachs International underwrote, purchased, and arranged three bond transactions for 1MDB in 2012 and 2013 that raised a total of USD 6.5 billion for 1MDB. The 1MDB transactions were approved by global The Goldman Sachs Group Inc. committees that Goldman Sachs International participated in and were booked to Goldman Sachs International.
FCA and PRA have fined Goldman Sachs International a total of GBP 96.6 million (USD 126 million) for risk management failures connected to 1MDB and its role in three fund raising transactions for 1MDB. The investigation found that Goldman Sachs International breached a number of FCA and PRA principles and rules. Specifically, GSI failed to:
- Assess with due skill, care, and diligence the risk factors that arose in each of the 1MDB bond transactions on a sufficiently holistic basis
- Assess and manage the risk of the involvement in the 1MDB bond transactions of a third party that Goldman Sachs International had serious concerns about
- Exercise due skill, care, and diligence when managing allegations of bribery and misconduct in connection with 1MDB and the third 1MDB bond transaction
- Record in sufficient detail the assessment and management of risk associated with the 1MDB bond transactions
The USD 2.9 billion global resolution announced included, in addition to the FCA and PRA, the US Department of Justice, the US SEC, the FED, the New York Department of Financial Services, MAS, the Attorney-General’s Chambers Office, Singapore, and the Commercial Affairs Department of the Singapore Police Force. The global resolution is separate from the USD 3.9 billion settlement reached between The Goldman Sachs Group Inc. and the Government of Malaysia in August 2020. FED announced that it has fined the Goldman Sachs Group, Inc. USD 154 million for the firm's failure to maintain appropriate oversight, internal controls, and risk management with respect to Goldman's involvement in a far-reaching scheme to defraud a Malaysian state-owned investment and development company, 1Malaysia Development Berhad (1MDB).
Additionally, in Singapore, a conditional warning was issued to Goldman Sachs Singapore Pte, which has committed to, among other things, paying USD 122 million to the Singapore Government’s Consolidated Fund within 5 working days from the date of the Conditional Warning. MAS has directed Goldman Sachs Singapore Pte to appoint an independent external party to review the measures taken by Goldman Sachs Singapore Pte to remediate deficiencies uncovered during an inspection conducted by MAS in 2016 on the company’s risk governance and controls in relation to the 1MDB bond offerings. MAS found lapses in the company's management oversight of enterprise-wide risk, inadequate documentation of risk assessments performed for the 1MDB bond offerings, and poor corrective actions taken for staff’s non-compliance with its policies and processes.
Related Links
Keywords: International, Europe, Americas, Asia Pacific, UK, US, Singapore, Banking, Goldman Sachs, Compliance Breach, FCA, PRA, FED, MAS
Previous Article
ISDA Launches IBOR Fallbacks Supplement and ProtocolRelated Articles
APRA Publishes Results of Climate Risk Self-Assessment Survey
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
ACPR Publishes Updates Related to CRD IV and Covered Bonds
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
EIOPA Publishes Guidance on Climate Change Scenarios in ORSA
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
EBA and ECB Respond to Proposals on Sustainability Disclosures
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
EBA Publishes Multiple Regulatory Updates for Regulated Entities
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
EESC Opines on Proposals on CRR and European Single Access Point
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury Publishes Multiple Regulatory Updates in July 2022
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.