Discover Gets Second Warning on Money-Laundering Prevention

NEW YORK (TheStreet) -- Discover Financial Services' (DFS) recent agreement with the Federal Reserve to beef up its money-laundering safeguards is its second compliance warning in just over a year. 

Last June, its Discover Bank subsidiary was ordered by the Federal Deposit Insurance Corp. to hold monthly reviews and hire new management to ensure that revised provisions of the Bank Secrecy Act are followed. Requirements included monitoring suspicious card activities and wiring transfers, and keeping a close eye on all transactions that could constitute money-laundering.

So far, Discover has not faced fines. The agreement with the Federal Reserve Bank of Chicago centers on enhancing the Riverwoods, Ill.-based company's "enterprise-wide anti-money laundering and related compliance programs," according to a company filing

The Fed's directive to the parent company is unsurprising after the FDIC's action against Discover Bank, said Christopher Donat, an analyst with Sandler O'Neill.  

"Basically, the Fed is following up on something the FDIC did a year ago," Donat said. "This is what happens when you get multiple regulators who have jurisdiction over the same thing."

Discover, which has a market value of about $26 billion and posted sales of $8.5 billion last year, had cautioned investors in its annual financial-performance filing that the Fed would require improvements to its compliance with the Bank Secrecy Act. 

Discover shares have fallen 1% since the agreement with the Federal Reserve Bank of Chicago was disclosed last week.

 

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