Everything you may have missed in banking over the holiday break

Article by Jenna McNamee  | Jan 4, 2023
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Everything you may have missed in banking over the holiday break
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Digital Banking
United States

The news cycle slowed for a while as much of the business world took a break over the holiday season. But it didn’t stop entirely. Here are a few useful things to know about that you may have missed:

The Consumer Financial Protection Bureau (CFPB) made Wells Fargo pay: On December 20, the regulatory watchdog slammed the bank for mistreatment of consumers, saying it engaged in a slew of illegal activities, including incorrectly assessing fees and interest, misapplying loan payments, illegally foreclosing on homes and repossessing cars, and charging surprise overdraft fees. The bank’s actions affected over 16 million customer accounts.

  • Wells Fargo must repay $2 billion to affected consumers and pay a $1.7 billion civil penalty fine. The $1.7 billion amount is the largest fine ever assessed by the CFPB.
  • Though the $3.7 billion payment marks progress at the bank as it continues to work on rebuilding its reputation, the CFPB’s director Rohit Chopra said he is not satisfied with the bank’s progress. He said the fine and redress payments are not the end of the agency’s work to correct the banking giant’s issues.

Chopra’s warning shouldn’t be taken lightly, as 2022 proved the director would aggressively come down on bad actors. Expect to see the intense scrutiny of Wells Fargo continue in 2023.

JP Morgan got sued: The government of the US Virgin Islands filed a lawsuit on December 27 against JP Morgan for its ties to the late financier Jeffrey Epstein.

  • The lawsuit alleges that JP Morgan financially benefited from servicing Epstein’s bank accounts linked to his sex trafficking operation, and that it knowingly and willingly facilitated the operation by failing to report suspicious transaction activity and by delaying its compliance with federal regulators’ requests.
  • This lawsuit follows two separate lawsuits brought against JP Morgan and Deutsche Bank in November by two anonymous victims of Epstein’s trafficking operation. Those complaints alleged both banks gave Epstein’s bank accounts special attention that allowed the trafficking operation to continue uninhibited. Both banks requested on December 31 that the lawsuits be thrown out, claiming that the allegations are factually deficient.

JP Morgan faces a tough road ahead in either trying to get these cases tossed or going to court. Crackdowns on misconduct at banks are top of mind for regulators—though late last year the Department of Justice announced it would show some leniency toward banks that come clean about misconduct. JP Morgan will need to consider the best way to proceed.

The Securities and Exchange Commission (SEC) charged executives in the crypto world: The SEC charged former Alameda Research CEO Caroline Ellison and former FTX Chief Technology Officer Gary Wang on December 21 with defrauding investors using the FTX crypto asset trading platform.

  • Ellison was charged with propping up the price of FTT, the FTX crypto token, through large purchases on the open market. The FTT token served as collateral for loans made by FTX to crypto hedge fund Alameda, founded by FTX founder Sam Bankman-Fried and Wang, using FTX customer assets.
  • Additionally, both Ellison and Wang were accused of misappropriating funds and completing transactions for Alameda’s own accounts using those misappropriated funds, as well as deceiving investors after it became known that FTX could not make its customers whole.
  • Wang and Ellison both pleaded guilty to the charges. Wang faces up to 50 years in prison and multiple monetary penalties. Ellison is facing 110 years in prison and millions of dollars in penalties.

The fallout of the FTX collapse and the subsequent findings regarding its sister company Alameda Research, as well as the legal proceedings against executives at both firms will lay the foundation for crypto regulation. As this story continues to unfurl, expect to see regulators around the world finally lay down the law in the crypto world.

This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.