Citigroup had initially planned to launch its investment banking division by mid-2023, but it later moved back that goal to the end of this year.
Citigroup Inc.‘s expansion into China has hit resistance from US regulators since the Federal Reserve imposed a penalty on the bank for its risk controls and data management practices.
The bank faced delays in opening a standalone securities firm because Chinese authorities demanded a clearance letter from the Fed confirming its regulatory standing. Citi had to address its data management problems at home after receiving a fine of $136 million in July.
The prolonged process comes when international banks, such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., have experienced difficulties in recent years due to rising geopolitical tensions, slower economic growth, and fund-raising activities.
Citigroup will not withdraw its application and is actively discussing it with China’s securities regulator. The New York-based bank released a statement stating they are committed to helping clients but will not comment on conversations with regulators regarding the ongoing process to obtain a securities license in China.
Chinese companies raised 76.4 billion yuan ($10.8 billion) to obtain onshore listings this year, with a decrease of 88% peak in 2022, and hundreds of firms have canceled their initial public offerings.
Nevertheless, Citigroup, one of the few big Wall Street firms without a securities business in China, suffers due to the delay. The new security laws, which require banks to separate domestic data before receiving onshore licenses, have also caused a delay in expansion.
Citigroup had initially planned to launch its investment banking division by mid-2023, but it later moved back that goal to the end of this year.
Under Chinese law, foreign banks meet several requirements to launch onshore operations, including adequate capital, a proven record in managing securities operations, and no regulatory fines in the past three years.
China Securities Regulatory Commission officials have reaffirmed their support for the bank expansion. Citigroup was imposed a fine by the Fed in July for violating enforcement orders. The bank was mandated to pay $61 million to the Fed and $75 million to the OCC. The fines were due to two consecutive regulatory actions in 2020 when OCC fined the bank $400 million for shortcomings in its internal controls, risk management, and data governance programs. Citi neither acknowledges nor denies the allegations. The fed stated that the bank was taking measures to correct the violations and get into compliance.
After announcing it would exit retail banking, the bank submitted the initial documents to set up a new company with Chinese regulators in late 2021. It had aimed to expand its onshore workforce to over 100 employees, focusing on yuan-denominated stock underwriting and futures. The company has already hired a chief executive officer, a chief financial officer, and a chief compliance officer for the securities company.
Citigroup, a latecomer to the Chinese securities market, disbanded its joint venture with Orient Securities Co. to focus on investment banking before launching its own company after China permitted full foreign ownership of financial services firms beginning in 2020.
Nevertheless, Citi has a broad range of operations in China that are authorized to handle domestic fund custody, corporate bond underwriting, and bond clearing. For over 20 years, it has offered custody services to eligible international institutional investors. It also provides these services for direct investments in the interbank bond market.
As part of a global restructuring, the US bank terminated its consumer banking network in China and sold HSBC Holdings Plc its retail wealth management portfolio last year.
Nevertheless, the bank’s head of wealth, Andy Sieg, stated earlier this week that it is excited about Hong Kong and its connections to the Greater Bay Area in mainland China and intends to bring more talent there.