Federal Reserve Orders Société Générale to Strengthen U.S. Compliance Oversight Amid Global Scrutiny

Key Takeaways

• Fed Enforcement: The Federal Reserve issued a Written Agreement with Société Générale’s New York branch to overhaul governance, compliance risk management, and affiliate transaction oversight.
• No Fine This Time: The agreement imposes no monetary penalty but requires sweeping reforms, quarterly progress reports, and potential third-party reviews.
• Past Violations: Regulators cited affiliate transaction breaches between 2011 and 2018, reflecting weaknesses in compliance testing and risk assessment.
• Global Scrutiny: The action comes as SocGen faces mounting compliance challenges worldwide, including a $2.55 million (AUD 3.88 million) fine in Australia last week for market integrity failures.

Deep Dive

The Federal Reserve has directed Société Générale to overhaul its compliance operations in the United States, entering into a Written Agreement with the French bank and its New York branch after years of shortcomings in risk oversight and affiliate transaction controls.

The Fed’s order followed findings that between 2011 and 2018, SocGen’s New York branch engaged in prohibited affiliate transactions, violating Sections 23A and 23B of the Federal Reserve Act and Regulation W. The case also exposed broader weaknesses in compliance risk assessments, monitoring, and internal audit across the bank’s U.S. operations.

Unlike some enforcement actions, the agreement does not impose a financial penalty. Instead, it requires the bank to submit detailed remediation plans, beginning with a governance overhaul within 60 days. These plans must enhance the role of the U.S. Risk Committee, ensure escalation of compliance issues, and strengthen reporting to senior management and the board.

SocGen must also build a more comprehensive compliance risk management framework, with robust testing, validation, staffing, and resources, as well as a retooled affiliate transaction compliance program with new controls, training, and monitoring. Internal audit has been tasked with conducting annual reviews and validating remediation steps. If regulators deem necessary, an independent third party may be brought in to review the affiliate compliance program and report findings directly to the Federal Reserve.

The agreement is legally binding and enforceable under the Federal Deposit Insurance Act, and requires quarterly progress reports until the New York Fed determines otherwise. Importantly, it does not supersede earlier cease-and-desist orders issued to Société Générale in 2017 and 2018.

A Pattern of Compliance Failures

The Fed’s move comes as Société Générale faces regulatory pressure on multiple fronts. Just last week, the Australian Securities and Investments Commission (ASIC) announced a $2.55 million (AUD 3.88 million) penalty against the bank for failing to stop 33 suspicious orders in the ASX 24 electricity and wheat futures markets. The Market Disciplinary Panel concluded that SocGen ignored five regulatory warnings in 2023 and acted recklessly by permitting manipulative trades that risked undermining confidence in key commodity markets.

Taken together, the Fed’s Written Agreement and the ASIC sanction illustrate the global scale of compliance and governance challenges confronting Société Générale. Even absent a monetary fine, the operational and reputational costs of remediation, regulatory oversight, and repeated enforcement actions are mounting, and the spotlight on gatekeeping responsibilities has never been brighter.

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