While the monetary penalty levelled against TD Securities (USA) LLC to resolve charges stemming from a former trader’s improper trading isn’t material to the bank, the case represents another blow to the bank’s reputation, says Moody’s Ratings.
Last week, TD’s U.S. investment bank subsidiary reached a deferred prosecution agreement with the U.S. Department of Justice (DoJ) over alleged manipulative trading in the U.S. Treasuries market.
The settlement included more than US$15.5 million in a monetary penalty, forfeiture and restitution, which Moody’s said is “not material” to the bank. However, the rating agency said it sees the settlement as “credit negative because they compound the reputational damage that TD has endured since the announcement of its U.S. [anti-money laundering (AML)] investigations in August 2023.”
“We view the DoJ resolution as an indication that TD’s risk management failings may extend to areas outside of AML controls and oversight, a development consistent with our negative outlook,” the rating agency said.
In August, Moody’s downgraded TD’s rating outlook to negative after the bank added US$2.6 billion to its provisions for potential AML sanctions in the U.S.
The rating agency said the revision aimed to “reflect the inherent uncertainty related to the magnitude of financial penalties and nature and duration of possible non-financial penalties that it could incur related to these matters.”
It’s expected that the AML issues will be resolved by the end of the year. In the meantime, Moody’s noted that, in the latest DoJ case, TD fired the trader, reported his alleged misconduct to U.S. regulators, and has since beefed up its monitoring and compliance capabilities.
“However, the [U.S. Securities and Exchange Commission’s] order indicated that TD Securities failed to take reasonable steps to scrutinize the trader after receiving warnings of his potential irregular trading activity,” Moody’s said.