Citigroup's China Expansion Plans Hit After Failing To Fix Data Management, Risk Control Issues: Report

Citigroup's plans to set up a standalone securities firm in China have hit a snag due to a lack of clearance from U.S. regulators, who cited the bank's unresolved data management and risk control issues, according to a Bloomberg report.

The New York-based bank was fined $136 million in July for failing to resolve its long-standing data management problems. The Federal Reserve and Office of the Comptroller of the Currency (OCC) imposed the fines due to the "insufficient progress" in fixing these issues and controlling risk factors.

At the time, both agencies had criticized Citigroup for not fulfilling the requirements of a 2020 consent order aimed at rectifying the bank's risk and control deficiencies. Although some improvements were noted, the regulators identified persistent, significant issues that necessitated further penalties.

The fines have hindered the bank's ability to comply with licensing regulations in China. And, to expand its operations into China, the bank needs a clearance letter from the U.S. Federal Reserve, Bloomberg reported.

Despite the challenges, the bank remains committed to its expansion plan and is continuing discussions with China's securities regulator to proceed with the business, the report said.

Meanwhile, Citi's profit climbed to $3.2 billion, or $1.52 per share, for the quarter ending June 30, up from $2.9 billion, or $1.33 per share, in the same period last year, according to Reuters.

Earlier this year, U.S. regulators directed the bank to implement changes regarding how it assesses the default risk of its trading partners, and the bank's auditors found the plan for improving internal oversight to be inadequate.

Last month, the Federal Deposit Insurance Corporation raised concerns about Citi's plans for living will, which would be activated if the company were to go bankrupt.

In 2020, Citigroup was fined $400 million after the Federal Reserve identified multiple issues relating to risk control and data quality management. Although the bank agreed to resolve these problems, the Fed found ongoing-related issues in 2023, reporting that Citigroup had failed to make the necessary progress on its data management program.

"Citigroup violated the 2020 order through delays in completing milestones included in its approved plan," the Fed stated at the time.