Operational risk continues to cost banks a lot of money. Just this week it was the turn of Citibank to pay a substantial fine ($400 million) for internal operational issues As reported in the New York Times, Citibank is paying this amount to the Comptroller of the Currency for failure to fix problems that have been identified over several years. Coincidentally (or not) the fine is being paid just “(t)wo months after one of its bankers accidentally sent nearly $1 billion to the wrong people.” A mistake which Citibank is trying to correct but where the recipients of the money are not agreeing to return it. The New York Times article goes on to note several other operational mistakes that have been reported. One can only speculate about the mistakes that have not surfaced publicly.
One of the key principles behind ESG investing is the element of strong Governance. Among the key elements of Governance is strong operational controls that minimise mistakes. Clearly in the case of Citibank there are issues in this area that lead not only to direct losses such as may occur with the mistake in transferring funds but also in the costs of the fine to be paid for internal operational issues. The appointment of a new independent committee of the board to focus on these issues is a good start. But that begs the question as to what the board was doing in the past.
