Banking: UK / USA happy slapping of each other's banks continues

This time, it's the Federal Reserve Bank which has decided that HSBC's counter-money laundering controls and systems do not meet its obligations under the Bank Secrecy Act.

That's funny: US banks in London historically regard it as sufficient that they meet the lower US standards and do not respond well when told they have to meet UK standards.

So the FSA should, round about now, have teams of people preparing to launch to check that US financial institutions operating in the UK comply with the UK's requirements. They will find it fertile ground.

HSBC North American Holdings, Inc is the vehicle through which HSBC Holdings PLC (which remains, at least for the time being, a UK headquartered financial institution) owns its north American operations.

Yesterday, the USA's Fed - which is one of many regulators affecting financial institutions in the USA, and HSBC NAH entered into an agreement. But it's the sort of agreement that is never freely entered into: duress is standard operating procedure.

HSBC NAH has agreed to review its counter-money laundering systems and controls and to appoint experts acceptable to the Fed to undertake a review; it has also agreed to make sure that its board exercises more direct supervision over compliance and risk management. Of course, being American they say "oversight" without realising why that is funny. Especially given the Fed's "oversight" when it came to supervision of the financial sector as it spawned a world-wide financial crisis.

The preamble to the agreed order, which is called a "cease and desist" order, emphasises that HSBC has a group-wide compliance and risk management process. But the Reserve Bank of Chicago "found deficiencies."

The list of things HSBC NAH must do is pretty much the standard list that the Fed puts into all of its orders. The importance of the Order lies not in its content nor, even, in the implementation of the Order. Rather it lies in the fact that such orders are often a prelude to action by other regulators who then levy penalties.

And here's where the USA's action becomes insidious: the FSA in the UK must already know of the action in the USA - that, after all, was the entire point of the recent Goldman Sachs case where the FSA fined the bank for not filing a notice saying it was under investigation in the USA.

And that means that the FSA may consider it necessary to look at HSBC's North American operations to ensure that they are meeting the UK's standards. After all, the rules require that overseas operations must abide by the stronger of "home or host" law and regulation. The UK's being stronger, if there are indeed failings in the US operations, then almost by definition, it is not meeting the stronger UK regulations.

HSBC is one of the world's best run banks but, like all global enterprises, there are weak spots. It would be bizarre one of those weak spots were in the USA where the cult of happy-slapping UK banks is rapidly turning into a trend.

And equally, it would be ridiculous if the UK escalates the situation by picking on US institutions.

But, it must be awfully tempting.

And, luckily, the US banks that are most likely to require a visit are within walking distance of the FSA's Canary Wharf offices.