The UK's two biggest banks will feel the heat from policymakers today in the UAE and the US over their Middle Eastern operations.
HSBC goes before the US Senate investigations subcommittee to face allegations of lacklustre internal controls at its local affiliates which failed to prevent money laundering by suspected terrorists and drug traffickers in countries including Saudi Arabia and Iran.
Meanwhile, Barclays has been called before the Central Bank over its decision to stand down from the panel which sets Emirates Interbank Offered Rates (Eibor) in the wake of a rate fixing scandal in the UK which forced the resignation of chief executive Bob Diamond.
The twelve banks on the panel, two of which are said to remain under investigation by UK authorities for their role in the Libor scandal, have been called to meet at the Central Bank today to discuss a replacement for Barclays.
The regulatory scrutiny come within 24 hours of a report by ratings agency Moody's accusing UAE banks of significantly underreporting bad debts by corporate customers.
HSBC Middle East, HSBC's local subsidiary, was linked via its affiliates to banks in Saudi Arabia connected to terrorist financing, and Iran, where it engaged in transactions worth $19.4bn during a decade-long period without disclosing them to authorities.
The 330-page report on the case also criticised HSBC for supplying nearly $1bn in US banknotes to Al Rajhi Bank, Saudi Arabia's biggest lender, which the US alleges has links to terrorist financing.
"In an age of international terrorism, drug violence in our streets and on our borders, and organised crime, stopping illicit money flows that support those atrocities is a national security imperative," said senator Carl Levin, the subcommittee chairman.
"If an international bank won't police its own affiliates to stop illicit money, the regulatory agencies should consider whether to revoke the charter of the U.S. bank being used to aid and abet that illicit money."
The bank acknowledged its failings in a statement in the early hours of this morning.
"HSBC takes compliance with the law, wherever it operates, very seriously," the bank said. "We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect. We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."
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