The unexpected high-profile accusations levelled at Standard Chartered by the New York state Department of Financial Services (DFS), and subsequent $340m (£217m) settlement, are seen by some as bullying tactics, and could make the US less appealing.
The row has also turned the spotlight on the complex system of overlapping regulators in the US – Standard Chartered is still negotiating with four other authorities.
The DFS “breached all the rules of regulatory process,” said Simon Morris from law firm CMS Cameron McKenna, as the regulator “broke cover during settlement negotiations, cut across four more senior US regulators, and failed to advise the Bank of England or the Financial Services Authority what was going on”.
“By shooting from the hip its leader Mr Lawsky has single-handedly made New York a less attractive place to do business,” Morris explained.
And banks are already concerned that the turmoil could hit any plans to extend their US operations.
“We need a stable platform on which to build the business, but now there is a question over how confident we can be in this regulatory environment,” one top UK bank told City A.M.
Meanwhile Standard Chartered still has to negotiate a settlement with four other regulators, although the fines are expected to be far smaller than the $340m levied by the DFS.
“Typically fines from bodies like the Department of Justice are in the tens of millions – the US authorities have a formula to work through,” said Pinsent Masons’ Tom Stocker.