Citigroup faces regulatory scrutiny amid urgent calls for risk management overhaul

US banking giant Citigroup Incfaces urgent demands from regulators to revise its methods for measuring default risk in trading partnerships, adding to challenges for CEO Jane Fraser's turnaround efforts.

As per a Reuters report these regulatory concerns, including directives from the Federal Reserve, highlight ongoing deficiencies in risk management and internal oversight, hindering the bank's recovery plans.

Last year, the Federal Reserve issued three Notices Requiring Immediate Attention (MRIAs) to Citigroup, urging swift action on how the bank assesses default risk in derivative transactions. These notices, typically confidential, underscore pressing concerns about the bank's risk assessment practices.

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Meanwhile, Citigroup's internal audit flagged shortcomings in addressing issues previously identified by regulators. Specifically, deficiencies were noted in improving risk management and ensuring comprehensive reporting to the board and senior management, highlighting persistent challenges in internal oversight.

Additionally, the Office of the Comptroller of the Currency (OCC) conducted examinations to assess Citigroup's progress on data integrity, revealing shortcomings and prompting additional remedial work. These regulatory actions coincide with Citigroup's efforts to address two 2020 consent orders related to deficiencies in risk management and internal controls, stemming from a payment mishap involving cosmetics firm Revlon.

The complexity of Citigroup's regulatory challenges underscores the scale of CEO Jane Fraser's overhaul efforts. While the bank has embarked on a significant restructuring to enhance profitability and shareholder value, regulatory hurdles pose a formidable obstacle to its ambitions.

In response to inquiries, Citigroup emphasized its commitment to meeting regulatory expectations and ongoing efforts to modernise and simplify its operations. The bank acknowledged the iterative nature of its progress, citing learnings in regulatory reporting and infrastructure enhancements.

The regulatory scrutiny has immediate implications for Citigroup's financial performance, with shares dipping amid news of regulatory pressures. While regulatory notices are common in banking supervision, Citigroup's challenges underscore the severity of its compliance issues.

Professor Julie Hill of the University of Alabama School of Law underscored the gravity of regulatory demands and incomplete compliance with prior consent orders, warning of potential consequences for Citigroup's regulatory standing and operational costs.

The MRIAs issued by the Federal Reserve highlight specific areas requiring urgent attention from Citigroup. These include improvements in data governance and clarity in governance structures to address counterparty credit risk concerns.

Internal audits at Citigroup also reveal delays in addressing regulatory concerns, with revised timelines indicating prolonged remedial efforts. The bank faces pressure to expedite corrective measures to meet regulatory expectations.

(With inputs from Reuters)