Special Measures Agreement

Special Measures Agreement
Name	Special Measures Agreement
Type	Regulatory compliance instrument
Jurisdiction	International and national
Established	20th–21st century
Related	United States Department of Justice, New York State Department of Financial Services, Department of Justice (Australia), Financial Conduct Authority, Securities and Exchange Commission (United States)

Special Measures Agreement

A Special Measures Agreement is a formalized enforcement and remediation instrument used by regulatory authorities, prosecutors, and oversight agencies to require institutions to correct misconduct, enhance controls, and submit to monitoring. Originating in responses to high-profile financial, corporate, and professional misconduct, these agreements link remediation with supervisory arrangements involving entities such as Federal Reserve System, Office of the Comptroller of the Currency, European Central Bank, and national prosecutors. They operate at the intersection of administrative enforcement, settlement practice, and compliance supervision involving parties like Deutsche Bank, Goldman Sachs, Wells Fargo, and other major institutions.

Background and Purpose

Special Measures Agreements arose from enforcement practices associated with landmark enforcement actions such as cases involving Enron, WorldCom, Lehman Brothers, and post-crisis interventions tied to the 2007–2008 financial crisis. Regulators and prosecuting authorities including the United States Department of Justice, Commodity Futures Trading Commission, Financial Conduct Authority, and state regulators crafted these instruments to achieve supervisory aims without perpetual receivership like Federal Deposit Insurance Corporation conservatorships or adversarial litigation exemplified by United States v. Parmalat. The purpose is to remediate deficiencies flagged in investigations led by offices such as the Manhattan District Attorney or agencies like the Securities and Exchange Commission (United States), while preserving market stability and protecting counterparties, investors, and clients represented by institutions such as JPMorgan Chase, Citigroup, and HSBC.

Legal and Regulatory Framework

These agreements rest on statutory and regulatory authorities vested in agencies like the United States Department of Justice, Office of the Comptroller of the Currency, New York State Department of Financial Services, and supranational regulators such as the European Central Bank and International Monetary Fund. They are implemented under legal regimes including statutes like the Bank Secrecy Act, Dodd–Frank Wall Street Reform and Consumer Protection Act, and anti-money laundering frameworks aligned with Financial Action Task Force recommendations. Prosecutors and regulators often coordinate under memoranda of understanding with institutions such as the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation, using administrative tools comparable to consent decrees in cases like United States v. Bank of America and structured settlements similar to resolutions with Deutsche Bank AG.

Key Provisions and Requirements

Common provisions include mandated remediation plans, enhanced compliance programs, appointment of independent monitors drawn from firms like Kroll, PricewaterhouseCoopers, or Ernst & Young, and reporting obligations to regulators such as the Federal Reserve Board. Agreements typically require governance reforms—e.g., changes to boards that may involve directors associated with BlackRock, Vanguard, or other institutional investors—and operational controls affecting business lines like investment banking and retail banking seen at Goldman Sachs, Barclays, and Wells Fargo. They often contain non-prosecution or deferred-prosecution elements analogous to settlements in cases like HSBC Holdings plc and remedial timetables that mirror supervisory action protocols used by Basel Committee on Banking Supervision-aligned authorities.

Implementation and Oversight

Implementation relies on monitoring frameworks executed by independent monitors, special compliance officers, or joint supervisory teams comprised of representatives from agencies like the Office of the Comptroller of the Currency, Financial Conduct Authority, and central banks such as the Bank of England. Oversight mechanisms include periodic progress reports, on-site examinations resembling those performed by the Federal Deposit Insurance Corporation, and benchmarks tied to regulatory guidance from bodies like the European Banking Authority and Prudential Regulation Authority. Where criminal elements are implicated, coordination with prosecutorial offices including the United States Attorney for the Southern District of New York or the Department of Justice (Australia) ensures enforcement parity with precedents such as the resolutions involving Siemens and GlaxoSmithKline.

Impact and Outcomes

Outcomes vary: some institutions adopt durable compliance reforms that align with international standards promoted by the Financial Stability Board and Basel Committee on Banking Supervision, while others experience governance churn, fines, and market effects tracked by exchanges like New York Stock Exchange and London Stock Exchange Group. Successful implementations can restore market confidence, reduce repeat misconduct observed in historical cases such as Libor scandal, and support remediation of anti-money laundering weaknesses cited in enforcement against Standard Chartered. Conversely, prolonged agreements have influenced corporate strategy, capital allocation, and mergers overseen by competition authorities like the European Commission and have affected investor relations involving shareholders such as The Vanguard Group and BlackRock.

Criticisms and Controversies

Critics—ranging from civil liberties advocates linked to American Civil Liberties Union to industry groups including U.S. Chamber of Commerce—argue that Special Measures Agreements can circumvent judicial processes and create asymmetries among regulated firms, echoing debates seen in cases like Apple Inc. tax rulings and Microsoft antitrust litigation. Others highlight conflicts of interest when private firms such as KPMG or Deloitte serve as monitors while providing consulting services to regulated entities, a concern also raised in relation to Arthur Andersen precedents. Transparency advocates cite limited public scrutiny compared with litigated outcomes in tribunals like United States Court of Appeals for the Second Circuit, whereas proponents emphasize efficiency and systemic risk mitigation reflected in interventions by institutions such as the International Monetary Fund and European Central Bank.

Category:Regulatory agreements