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StanChart Says Almost `Over Hump' on Costly Compliance Upgrades

StanChart Says Almost `Over Hump' on Costly Compliance Upgrades

(Bloomberg) -- Standard Chartered Plc said it has almost completed costly technology upgrades required to cope with stricter banking regulations worldwide, freeing it up to focus more on revenue-generating products like digital banking.

The London-based bank spent 60 percent of its $1 billion technology budget on compliance-related systems last year and plans a similar allocation for 2017, Chief Information Officer Michael Gorriz said in an interview in Singapore. The remainder is for other investments to improve products and services, he said.

“We hope that we are over the hump with the regulatory programs this year,” said the 57-year-old physicist-turned-banker. “Next year, it will phase down and we will have more for products and strategic development.”

The stakes are high for the bank that operates in more than 70 countries and is under investigation by regulators from the U.S. to Hong Kong. When Chief Executive Officer Bill Winters joined Standard Chartered in 2015, he pledged to spend more than $3 billion over three years to upgrade the bank’s technology systems to improve customers’ experience and better handle regulatory compliance. 

Standard Chartered hired 4,500 people last year for its global information technology and operations function, said Gorriz, who joined the bank in July 2015 after about 15 years at German automaker Daimler AG. A total of 24,000 staff work in the function, more than half of whom are based in India. The move comes as other global banks pare back staff tasked with detecting wrongdoing.

The bank is spending $200 million annually -- a third of the regulation-related IT budget -- over two years to boost its financial crime compliance-related programs, or FCC, Gorriz said. “By installing and implementing these processes, we will be definitely on the cutting edge of FCC compliance,” he said.

Since 2012, Standard Chartered has been operating under a deferred prosecution agreement -- due to expire in December -- with the U.S. government after acknowledging it had violated sanctions against Iran. The lender is cooperating with an investigation by U.S. authorities into the extent that its conduct and control failures allowed clients with Iranian interests to conduct transactions through the bank. It paid just under $1 billion for the sanction violation and for weaknesses in its anti-money laundering controls.

Hong Kong has been investigating the role Standard Chartered’s local unit played as a joint sponsor of an initial public offering by China Forestry Holdings Ltd. in 2009.

Developing Markets

While prone to risks such as money laundering because it operates in emerging economies in Asia, the Middle East and Africa, Gorriz said Standard Chartered has a competitive advantage in nations such as Pakistan and Bangladesh, where the lender has operated for more than a century.

“We have a big ambition to be, specifically in these countries, on the leading edge," said Gorriz. “We are one of the few banks which have the possibility with our presence in the Asia, the Middle East and Africa to connect them to the G-10 currencies."

CEO Winters told reporters in Karachi earlier this month that the bank was looking to take advantage of business opportunities from increased consumer spending in Pakistan as it heads into an election next year, as well as from power and infrastructure projects. But those opportunities will be offset by the bank’s “extremely high” spending on compliance in the country, he said.

Going Digital

The remaining 40 percent of the $1 billion annual IT budget will be used to make product improvements and offerings in areas including consumer banking and corporate services, Gorriz said.

Standard Chartered’s customers will be able to forgo paperwork when opening a new account in Singapore and India this year, as the bank will connect to the governments’ central registry and tap into clients’ information for new accounts, Gorriz said. Governments in both countries are seeking to transform financial services by digitizing residents’ data which include national identification numbers and allow lenders to access such information with customer consent.

“The main thing is how do you herd your customers, the existing and new ones, into this digital behavior, because if you offer customers both digital and paper channels, basically you double the cost,” he said.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Andy Sharp, Darren Boey