NEW YORK – Federal regulators are moving to make it more difficult for Wells Fargo to make executive changes or give departing executives departure packages known as “golden parachutes,” the latest signal that the San Francisco bank will be grappling with the fallout from a sales scandal for months to come.
The move by the Office of the Comptroller of the Currency caught Wells Fargo executives by surprise. It comes after the bank had already reached a $184 million settlement in September with regulators, including the OCC, after acknowledging that it had fired thousands of employees for opening checking accounts and credit cards customers didn’t ask for in order to meet sales goals.
Such so-called enforcement actions can trigger new restrictions on a bank’s operations. But the OCC has typically waived those restrictions and it did so again when it initially reached a settlement with Wells Fargo.
In a brief notice late Friday, the OCC said it has now changed its mind.
The agency “informed the Bank today that it has revoked provisions of the enforcement documents that provided relief from specific requirements and limitations regarding rules, policies, and procedures for corporate activities,” the OCC said in a statement.
As a result, Wells Fargo will be required to get agency approval for changes in directors and senior executive officers, and for any golden parachute payments, the OCC said.
An OCC spokesman declined to comment on why the agency decided to rescind its decision to waive the restrictions. Its action comes as the bank and regulators continue to face criticism from angry lawmakers.
Wells Fargo, which saw customers opened 44 percent fewer accounts last month, said it would continue to cooperate with its regulators. “The updated requirements are not a result of any new event or issue,” Wells Fargo CEO Tim Sloan said in a note to employees. “In addition, they will not inhibit our ability to execute our strategy, rebuild trust, serve our customers, or continue to operate the company for the benefit of all our stakeholders.”
The sales scandal has sparked widespread criticism of the bank. But the surprise election of President-elect Donald Trump, who has promised to dismantle some key banking industry regulations, had raised the prospect that the company’s troubles would fade as regulators and lawmakers turned their attention to preparing for the new administration’s priorities.
That now appears less likely. “Though the agency didn’t give a reason for the unexpected measure, it’s an indication that the OCC and other financial regulators don’t intend to slide into lame-duck mode,” said Ian Katz, director at the policy analysis group Capital Alpha. “Despite the mood of optimism that Trump will be able to overhaul regulations and regulators, the OCC move underscores the fact that those changes can take a long time.”
This also comes as the OCC conducts an internal review into how it handled the Wells Fargo case.
The agency received a “small number” of complaints from consumers and bank employees in March 2012 about the bank’s sales practices, according to written testimony Comptroller of the Currency Thomas Curry gave a Senate committee in September. At the time, the OCC had about 60 employees dedicated to supervising the bank on a day-to-day basis, most working in Wells Fargo’s offices in San Francisco and Charlotte.
But it would be nearly a year after those calls, and after a Los Angeles Times article called out the bad behavior, before the OCC began meeting with Wells Fargo about the issue.
And it would be another three years, June 2015, before the OCC would warn Wells Fargo’s then-chairman John Stumpf that the bank needed to take action to improve its sales practices. By the time regulators agreed to fines against the bank in September, Wells Fargo had fired 5,300 employees — about 1,000 a year — for opening sham accounts.
“I believe the OCC can and must do better,” Curry has said.
One of OCC’s priorities after the crisis was to encourage big banks to improve various internal controls, including their risk management and internal auditing systems. In 2010, the agency introduced “heightened expectations” in those areas, but the guidance didn’t come with any potential punishments if the banks didn’t comply.
By 2012, the agency realized the process was moving too slowly. But it would be another two years, September 2014, before the agency would set up enforceable guidelines.
“Had these structure elements been functioning properly, they would have prevented the type of abuses we have witnessed at Wells Fargo,” Curry told lawmakers.
“The continued application of OCC’s heightened standards for large banks, will help ensure that they have the governance and controls necessary to prevent these sorts of practices in the future,” Curry said then.
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