Central Bank challenges Standard Chartered over SME account closures

Standard Chartered’s woes deepened yesterday.

The Central Bank of the UAE said that StanChart’s plans to close the majority of its small and medium enterprise (SME) accounts in the country, as part of a $300 million settlement with US authorities, would be subject to legal action from affected account holders.

In a statement yesterday, the Central Bank said that StanChart's closure of SME accounts in the UAE, a key part of its settlement with the New York State department of financial services (DFS), "means that the bank will be liable to prosecution by those companies due to the material and moral damage which is falling on them".

The Central Bank also said that its Consumer Protection Unit would be willing to consider any complaints from companies affected by the move. Up to 8,000 UAE accounts might be affected, according to the Central Bank.

The DFS, which originally had fined StanChart $340m in 2012 for working with Iranian banks and companies for nearly a decade, ruled on Tuesday that the monitoring systems subsequently put in place by the bank had failed to detect a large number of potentially high-risk transactions for further review, the majority of which originated from its branches in the UAE and its Hong Kong subsidiary.

StanChart agreed to pay a fine of $300m and adopt a series of remedial measures, including the closure of the majority of its SME accounts in the UAE.

However the Central Bank said that its own investigation had uncovered “no significant violations against the branches of Standard Chartered Bank in the UAE, relating to the penalty that was imposed on the bank in New York”.

StanChart's announcement that it will close the majority of its SME accounts has led to confusion among it customers.

“I don’t know how it’s going to affect me,” said an Emirati business customer of StanChart, who did not wish to be named. “They haven’t contacted us at all, we don’t know what is happening. Are we going to be offloaded to someone else? If someone else takes the accounts on, will they have the same problem?”

StandChart declined to comment.

The Central Bank’s announcement does not imply that it disagrees with the DFS’s findings, but was primarily intended to remind UAE customers of their rights, said Amir Ahmad, a partner with the law firm Pinsent Mason in Dubai.

“Even if the UAE Central Bank is cognisant that Standard Chartered has to comply with the DFS’s regulations, it doesn’t mean that they would not let individual account holders take action against the bank, as they’re the ones who are incurring the damage,” he said.

But a second UAE-based lawyer criticised the requirement by US authorities that StanChart close accounts in a foreign jurisdiction.

“It’s classic territorial overreach by US authorities to instruct a bank to close accounts in another country,” said the lawyer, requesting anonymity.

“The authorities in New York could have simply asked Standard Chartered to undertake not to process any dollar accounts via New York for the affected account holders and left it at that, which would have been a legitimate and proportionate response. Instead, by telling them to close the accounts, they’ve gone overboard.”

jeverington@thenational.ae

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