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Citigroup has repeatedly breached a key U.S. Federal Reserve rule known as Regulation W, which is designed to limit intercompany transactions and protect depositors.

According to a confidential Citi document from December, shared by Reuters, these infractions have led to errors in the bank's internal liquidity reporting.

Notably, regulation W is intended to prevent banks from taking undue risks with their affiliates, thereby safeguarding depositors' funds, which are insured up to $250,000 by the government.

Julie Hill, dean of the University of Wyoming College of Law, explained that the regulation is designed to prevent banks from engaging in transactions that could harm depositors or deplete government insurance funds.

Citi's Compliance Issues

Now, the issues surrounding Citi's compliance with Regulation W come at a time when the bank is already dealing with other regulatory challenges.

In 2020, authorities labeled Citi's risk management practices as "unsafe and unsound," and the bank has since faced further criticism and fines, including a $136 million penalty this year for failing to make sufficient progress in compliance.

As a response, a Citi spokesperson stated that the bank is committed to adhering to laws and has a strong framework in place to address Regulation W issues promptly.

Despite these assurances, the document suggests that Citi has struggled with identifying, monitoring, and preventing future violations of Regulation W. It also points to weaknesses in the bank's policies and procedures, which may not provide clear guidance for employees to ensure compliance.

The potential consequences of breaching Regulation W can vary, ranging from minor warnings to severe penalties such as public consent orders. The exact impact of Citi's violations on its operations and reputation remains unclear, but it adds to the bank's ongoing regulatory and compliance challenges.

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