Citigroup’s ambitions to expand its securities business in China have hit a snag due to regulatory penalties imposed by the US Federal Reserve, reports Bloomberg. The bank is facing delays in setting up a standalone securities firm as it awaits a clearance letter from the Fed, a requirement by Chinese authorities.
The setback comes after Citigroup was fined a combined $136 million in July for data management and risk control issues. The bank has been instructed to resolve these problems before receiving the necessary clearance.
This delay adds to the challenges faced by global banks in China, including Goldman Sachs and JPMorgan, who have seen their operations hampered by geopolitical tensions, economic slowdown, and a slump in fundraising activities.
Despite the hurdles, Citigroup remains committed to its expansion plans and is continuing discussions with Chinese regulators. The bank has no intention of withdrawing its application, although the situation remains fluid.
Blow to Citigroup
The delay is a blow to Citigroup, one of the few major Wall Street firms without a securities business in China. The expansion has also been delayed by China’s new security laws, which require banks to segregate domestic data. Citigroup had initially aimed to launch the business by mid-2023 but has pushed back the target to the end of this year.
Under Chinese law, foreign banks must meet certain conditions to establish onshore operations, including having no major regulatory fines in the past three years, proven experience in managing securities operations, and adequate capital.
The Fed’s penalty in July stemmed from violations of enforcement actions, resulting in fines from both the Fed and the Office of the Comptroller of the Currency. Citigroup is taking steps to rectify the violations and comply with regulations.
Citigroup submitted initial documents to Chinese regulators in late 2021 after announcing its exit from retail banking. It aimed to build its onshore headcount to over 100, focusing on yuan-denominated stock underwriting and futures trading. The firm has already recruited key executives for the securities company.
A late entrant to China’s securities market, Citigroup dissolved its investment-banking joint venture with Orient Securities Co. and sought to start its own business after China allowed full foreign ownership of financial services companies in 2020.
Despite exiting consumer banking in China, Citigroup remains optimistic about the region. The bank’s head of wealth recently stated plans to add talent in Hong Kong, citing bullishness on the city and its links with the Greater Bay Area in mainland China.
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