Citigroup, Inc. (C) is experiencing a setback in its ambitious expansion plans in China, as US regulators have reportedly raised concerns. Bloomberg reports that the Federal Reserve has imposed a penalty on the bank for issues related to data management and risk controls, hindering its progress in establishing a standalone securities firm in the country. This development comes after the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) fined Citigroup $135.6 million in July for failing to comply with a 2020 enforcement action regarding these very issues.
The bank is facing delays in securing a clearance letter from the Fed, which is essential for obtaining a securities license from Chinese authorities. While Citigroup has refrained from commenting on the specific details of its conversations with regulators, the news highlights the significant hurdle the bank faces in its China expansion strategy.
Previously, Citigroup had announced plans in January 2024 to launch its fully-owned investment banking unit in China by the end of the year, targeting a team of approximately 30 individuals. This team was intended to grow in the coming years through local hires and transfers from Hong Kong and other markets.
This recent regulatory scrutiny underscores the challenges Citigroup has been facing in addressing data management problems identified in the 2020 enforcement action. In 2020, the bank was fined $400 million for persistent deficiencies in risk management and data quality controls.
Despite this setback, Citigroup remains committed to its expansion plans in China. Investors interested in the company can access its stock through ETFs like First Trust Nasdaq Bank ETF (FTXO) and Series Portfolios Trust InfraCap Equity Income Fund ETF (ICAP).
As of Monday, C shares are trading slightly higher, up 0.47% at $62.43. The bank’s ability to overcome these regulatory hurdles and achieve its ambitious China expansion goals remains to be seen.
