29th November 2019

Citigroup’s UK operations fined for failings in their regulatory reporting governance and controls

The Prudential Regulation Authority (PRA) has imposed a combined financial penalty on Citigroup Global Markets Limited (CGML), Citibank N.A. London branch (CBNA London) and Citibank Europe Plc UK branch (CEP UK) (together, Citi) of £43.9m for failings in relation to their internal controls and governance arrangements underpinning compliance with PRA regulatory reporting requirements.

Citi agreed to resolve this matter and therefore qualified for a 30 per cent reduction in the fine imposed by the PRA. Without this discount, the fine imposed by the PRA would have been £62.7m.

While Citi remained in surplus to its liquidity and capital requirements at all times, the failings persisted over a significant length of time and were serious and widespread in nature. They led to significant errors in the firms’ returns, including six substantive matters that had a material or potentially material impact on the returns. This meant the returns submitted were unreliable and did not provide the PRA with an accurate picture of CGML’s capital or liquidity position.

The PRA’s investigation focused on CGML’s capital and leverage returns, CGML’s liquidity returns and CEP UK and CBNA London’s branch returns.

The PRA’s investigation identified that, although during the period under investigation Citi had begun to undertake a significant remediation programme to address data quality issues, the internal controls and governance arrangements which underpinned Citi’s UK regulatory reporting were not in a number of respects designed, implemented or operating effectively. They were therefore inadequate to ensure accurate regulatory reporting for an organisation of Citi’s size, complexity and systemic importance. This led to the significant number of errors and misstatements identified in Citi’s returns.

In particular:
• Citi failed to ensure that systems and controls supporting its UK regulatory reporting framework were designed, implemented and operating effectively;
• Citi failed to allocate adequate human resources to ensure that CGML’s liquidity returns were complete and accurate;
• Citi’s documentation of multiple aspects of its UK regulatory reporting control framework was inadequate given its size, complexity and systemic importance;
• CGML’s approach to technical interpretations of reporting requirements was insufficiently robust given the complexity of those decisions and the impact they could have on the accuracy of the returns; and
• Citi’s oversight and governance in relation to regulatory reporting fell significantly below the standards expected of a systemically important institution.

As a result, Citi breached relevant requirements under the PRA Rulebook. Specifically, CGML and CBNA London breached Fundamental Rule 6 of the PRA Rulebook. CBNA London and CEP UK also breached the Branch Return Rule (which was in effect from 1 July 2015) and all three firms breached Rule 6.1 of the Notifications Part of the PRA Rulebook.