Wednesday, April 21, 2021

Anti-Money Laundering Controls Play Bigger Role in Credit Ratings


Lapses in anti-money laundering and financial-crimes controls are more likely to affect a banks’ credit rating than almost any other nonfinancial factor, according to Fitch Group Inc.

The findings from the credit-ratings firm, published Thursday, were part broader analysis of the impact that environmental, social and governance factors have on issuer credit scores. The evaluation categories include energy management, labor relations, management strategy, among other metrics.

“Financial crimes compliance lapses can be serious, material and can drive credit ratings,” Monsur Hussain, senior director in the financial institutions group at Fitch, said in an interview.

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Anti-money-laundering controls are playing a bigger role in credit ratings because regulators across the globe are cracking down on banks with weak controls, Mr. Hussain said.

“We see a pattern of supervisory activity and muscular enforcement in Western Europe and in Asia,” Mr. Hussain said. He added that U.S. regulators have adopted a zero-tolerance approach to money-laundering regulations, and banks have largely adhered.

The findings follow a string of investigations related to possible Russian money-laundering at European banks.

In its report, Fitch pointed to negative ratings actions it has taken in recent months related to what it described as weaknesses in risk management and the potential for regulatory fines.

Fitch last month cut its outlook for Swedbank AB as the bank struggled to contain a spiraling crisis over possible ties to a money-laundering scandal at Danske Bank A/S. The credit-ratings firm cited uncertainty over the Swedbank’s reputation and the potential for “capital-depleting fines” from regulators as the reason for its decision.

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A spokesman for Swedbank didn’t immediately provide comment. A spokesman for Danske didn’t respond to a request for comment.

Fitch this year began scoring the relevance of environmental, social and governance factors on its credit ratings. Competitors such as Moody’s Corp. and S&P Global Inc. also factor these issues into some of their credit ratings.


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