New Fed developments have put Citigroup (C.N) in the spotlight, as U.S. regulators demand urgent changes to the bank’s approach to measuring default risk and internal oversight. These challenges could pose obstacles to CEO Jane Fraser’s efforts to rejuvenate the bank’s performance.

2. Federal Reserve Notices

Late last year, the Federal Reserve issued three notices to Citigroup, highlighting deficiencies in how the bank measures the risk of default by counterparties in derivative transactions. These notices, known as Matters Requiring Immediate Attention (MRIAs), underscore the need for Citigroup to enhance its data and governance related to capital allocation for counterparty credit risks.

3. Internal Audit Findings

Additionally, Citigroup’s internal audit unit identified shortcomings in the bank’s efforts to address issues raised by regulators in 2020. Specifically
there were deficiencies in risk management improvements across the organization and inadequate procedures to ensure comprehensive risk reporting to the board and senior management.

4. Office of the Comptroller of the Currency (OCC) Exams

The OCC conducted examinations to assess Citigroup’s progress on data integrity, following the bank’s claims of improvement. However, Citigroup failed these exams, necessitating further corrective actions to address data governance challenges.

5. Impact on Consent Orders

These regulatory challenges compound Citigroup’s existing obligations under two consent orders from 2020, issued by both the Federal Reserve and the OCC. These orders mandate Citigroup to rectify long-standing deficiencies in risk management, data governance, and internal controls
stemming from the mishandling of funds in a transaction involving cosmetics firm Revlon.

6. Citigroup’s Response

In response to these developments, Citigroup emphasized its commitment to meeting regulatory expectations and acknowledged the complexities of its ongoing efforts to simplify and modernize the bank. The bank highlighted the non-linear nature of progress and emphasized the incorporation of regulatory insights into its initiatives.

7. Regulatory Implications

Progress on resolving regulatory issues is crucial for Citigroup, as regulators wield authority to impose growth limitations, management changes
or board restructuring for non-compliance with consent orders. Failure to address these challenges promptly could lead to heightened enforcement actions and increased costs for the bank.

8. Conclusion

The recent rebukes from regulators and setbacks in compliance efforts underscore the formidable challenges facing Citigroup as it navigates regulatory scrutiny and undertakes organizational reforms. CEO Jane Fraser’s leadership will be critical in steering the bank through these challenges and restoring confidence among stakeholders.

9. FAQs

1. Q: What are the MRIAs issued by the New Fed to Citigroup? A: The MRIAs highlight deficiencies in Citigroup’s approach to measuring default risk in derivative transactions, emphasizing the need for enhanced data and governance.
2. Q: What are the implications of Citigroup’s failure to address regulatory concerns promptly? A: New Fed faces potential growth limitations
   management changes, or board restructuring if it fails to comply with regulatory directives
   which could result in increased costs and reputational damage.
3. Q: How has Citigroup responded to the recent regulatory challenges? A: Citigroup has reaffirmed its commitment to meeting regulatory expectations and acknowledges the complexities involved in its ongoing efforts to modernize and simplify operations.
4. Q: What are the key objectives of the consent orders issued to Citigroup in 2020? A: The consent orders mandate Citigroup to address deficiencies in risk management, data governance, and internal controls
   stemming from previous regulatory lapses.
5. Q: How critical is CEO Jane Fraser’s leadership in addressing Citigroup’s regulatory challenges? A: CEO Jane Fraser’s leadership is essential in navigating Citigroup through regulatory scrutiny, implementing organizational reforms
   and restoring stakeholder confidence.