N.Y. State Suspends Promontory From Some Consulting Work

New York’s banking regulator blocked consulting firm Promontory Financial Group from taking some assignments with banks the state oversees, setting up a potential showdown in court between the two sides. The New York Department of Financial Services said Promontory, one of the financial industry’s most prominent consultants, was too close to its client, Standard Chartered PLC. The state regulators alleged the firm watered down its compliance reports on the U.K. bank. As a result, the department said it would indefinitely cut off Promontory’s access to confidential department information it needs for some assignments, thus suspending the firm from some future consulting work. Promontory vowed to fight the department’s move and could file a request in court within days to put a hold on the action, people familiar with the matter said. “We will litigate the matter and defend our firm against this regulatory overreach,” Promontory said. That would be a rare legal challenge to the authority of the state regulator, which has waged a high-profile battle against what it sees as conflicts of interest at consulting firms such as Promontory in their work for banks. Promontory, based in Washington, was founded in 2001 by Eugene Ludwig, a former U.S. comptroller of the currency. The company positions itself as a “bank doctor” to help lenders with their compliance before they get in trouble with the government. The firm has hired a number of former regulators, including Mary Schapiro, the former Securities and Exchange Commission chairman, who worked at Promontory in 2013-14 and is still vice chairman of the firm’s advisory board. Standard Chartered has agreed to pay nearly $1 billion in multiple settlements in recent years with New York’s bank supervisor and other regulators over its handling of transactions that originated in countries such as Iran, Libya and Sudan that were subject to U.S. economic sanctions. Promontory was hired before those settlements to prepare reports to regulators about some of the bank’s conduct, and the New York regulator said the firm earned $54.5 million in revenue as a result. According to the regulator, Promontory improperly altered and toned down its findings. Both at the bank’s request and on its own, Promontory softened language and removed red flags that would have highlighted the bank’s misconduct, the state regulator said. In one case, the department said, the bank’s counsel asked for language in a Promontory report to be made “more bland.” In another, the bank’s counsel allegedly told Promontory to replace “potential violations” with a more ambiguous and innocuous phrase. “[N]o question the bank is going to have a big problem in trying to present some of these figures…and our report can go a long way toward softening the blow…,” a Promontory senior analyst wrote in January 2011, according to the New York regulator. see more: http://www.wsj.com/articles/n-y-state-to-suspend-promontory-from-some-consulting-work-1438611686