Governance is becoming increasingly important to global banks as the cost of conduct failings continues to grow, according to a new report from Fitch Ratings.

In the report, the rating agency said growing investor attention to environmental, social and governance (ESG) issues, coupled with robust regulatory action for conduct failings, is making governance critical for banks.

The rating agency said weak oversight and controls have proven very costly for banks and will continue to be so in terms of fines and restitution in the years ahead.

For instance, Fitch noted that several large North American banks — including JP Morgan, Bank of Nova Scotia, and Deutsche Bank’s U.S. division — recently reached regulatory settlements involving alleged “spoofing” activity.

“Failures in the compliance function to detect and properly report this activity added to the severity of the restitution for JP Morgan and Bank of Nova Scotia,” it said.

“Deutsche, CapitalOne and Citigroup also each received regulatory reprimands for deficient risk management and inadequate systems, policies and procedures,” Fitch added, “while the U.S. subsidiary of Toronto-Dominion Bank was fined for inadequate consumer disclosures.”

One of the largest recent cases saw Goldman Sachs reach settlements to resolve corruption charges involving the Malaysian sovereign wealth fund, 1MDB, which cost an estimated US$5.1 billion in fines and restitution.

While the financial impact of these sanctions haven’t directly prompted any rating actions, Fitch said they can serve as a signal of governance failings that could weigh on ratings, particularly in a “more challenging operating environment.”

Indeed, the ratings agency said, “the longer-term costs from remediation, adjustment to company culture and improvements in control frameworks goes far beyond these initial fines. The punitive levels of restitution highlight the view that policymakers are taking a tougher line with the industry and indicate low tolerance for repeated misconduct.”

While these recent cases haven’t resulted in ratings actions, Fitch noted that “significant governance deficiencies have resulted in negative rating actions at financial institutions in the past, including U.S. Bancorp in February 2018 and Wells Fargo in October 2017.”

Looking ahead, Fitch said the heightened regulatory attention on governance issues is expected to continue, regardless of the outcome of the U.S. election.

“While governance has always been relevant to bank ratings, we expect that environmental and social issues will increase in importance over time as regulators, investors, customers and other ESG-minded stakeholders increase their focus on banks’ attitudes and polices on climate change and economic inequality issues,” Fitch said.