Well, that didn’t last long.
Barely a month after launching its “Re-Established” ad campaign with ads about “Earning Back Your Trust”, Wells Fargo is in trouble again. This time it’s settling Securities and Exchange Commission (SEC) charges for violating its own internal policies by encouraging consumers to actively trade a product meant to be held to maturity.
The SEC found that employees of Wells Fargo Advisors were telling retail customers to actively trade market-linked investments (MLIs). When customers sold MLIs before maturity and used the proceeds to invest in new MLIs, Wells Fargo made a lot of money at the cost of investor returns.
The company, which neither admits or denies the charges, agreed to pay a $4 million penalty, return nearly $1 million of “ill-gotten gains,” and pay $178,000 in interest.
Turning over a new leaf means fixing what’s broken
If you’re like me, when you first heard the “Earning Back Your Trust” campaign, you chortled a little. Was the banking behemoth really ready to announce that it was done with its seemingly non-stop parade of malfeasance? I don’t have to remind you that Wells Fargo has had one heck of a time following its own policies and procedures the past few years, resulting in all kinds of scandals.
Remember in 2016 when the banking giant agreed to pay $185 million in fines and fire 5,300 employees after thousands of employees secretly opened over 2 million deposit and credit card accounts for unwitting customers?
Then there was the time the company charged as many as 570,000 customers with auto loans for car insurance they didn’t need or buy (an act for which they were “extremely sorry” and ultimately cost them ), illegally repossessed cars from service members, and was sued for overcharging small businesses for credit card transactions.
What about the time it made headlines for improperly handing over files containing the personal information of an estimated 50,000 high-net-worth customers of Wells Fargo Advisors? We’re talking names, tax-payer ID numbers, assets under management and the performance of those assets. Information about the firm’s financial advisors was also included, everything from compensation to client lists.
These are not a few minor mistakes caused by the odd bad apple. It’s a systemic problem where a culture of risk management is clearly lacking. Time and again they failed to follow their own policies and procedures, harming customers in the process. That’s why the Federal Reserve has prohibited Wells Fargo from further growth until its governance and risk management improve, and the Consumer Finance Protection Board (CFPB) fined the bank an epic $1 billion for the harm its unsafe and unsound practices and poor risk management caused consumers.
Tips for proactive risk management of product sales
Is it really a new day at Wells Fargo, as its ad promises? I don’t think that it is. It’s “Earning Back Your Trust” ad promises that “We’re holding ourselves accountable to find and fix issues proactively, because earning back your trust is our highest priority.” Yet the bank fails to admit wrongdoing in the SEC case. In May it paid $480 million to settle a class-action lawsuit but denied doing anything wrong, saying it simply wanted to “avoid the cost and disruption of further litigation.”
It’s like a bank exam. It’s better to identify your own weaknesses and attempt to correct them before examiners come so they can trust that your institution is proactively working to improve itself. No one is perfect. Mistakes are made, but it’s much worse when an examiner discovers the problem than when you look for them on your own and work to correct them.
When it comes to ensuring employees are following policies and procedures, make sure you have an active risk management culture where:
- Standards are defined and communicated.
- Internal controls and systems detect misconduct.
- Employees are able to report misconduct without fear of retaliation.
- Processes for investigating misconduct are taken seriously.
- There are real consequences for misconduct.
If you’re going to come out with splashy ads saying you’ve changed your ways, you better have changed your ways. You need to take full responsibility and own your mistakes. Otherwise you’re just doubling down on deceit, losing even more customer trust.