The Federal Reserve rejected Wells Fargo’s plans to reform its internal practices after a series of consumer abuse scandals, according to a report Thursday.
The central bank’s concerns will likely result in an extension of the growth cap placed on Wells Fargo for engaging in fraudulent and misleading sales practices, Reuters reported, citing multiple sources familiar with the matter. The Fed is said to have informed Wells Fargo it needs to impose stronger checks on its upper management.
The Fed’s exact objections to Wells Fargo’s plan to overhaul its corporate governance structure are unclear. Wells Fargo must submit a new plan and get it approved before the growth cap will be removed.
"Wells Fargo is in frequent and consistent dialogue with our regulators, including discussions regarding consent orders, and we work diligently to address feedback provided," Wells Fargo said in a statement. "This is an ongoing, iterative process."
The bank’s shares fell more than 2 percent in pre-market trading on the news.
Aside from tighter corporate governance, the Fed ordered Wells Fargo to replace four members of its board of directors and repay customers affected by sales practice scandals. Wells Fargo had to submit a plan for review by last April and have it approved by the Fed and reviewed by a third party by Sept. 30, but missed the latter deadline.
Wells Fargo has faced unprecedented scrutiny since the Consumer Financial Protection Bureau found that the bank’s employees had opened millions of credit card and deposit accounts for customers without their consent. Sen. Elizabeth Warren, D-Mass., who sits on the Senate Banking Committee, has repeatedly called for a crackdown on the bank and demanded the ouster of its CEO, Tim Sloan.
Sloan said earlier this week that Wells Fargo expects to remain under an asset cap until at least early 2019, adding that the company is working to improve its risk management practices to address the Fed's concerns.
“We're still planning on operating under the asset cap through the first part of next year. It's really not impacting our ability to serve our customers in any of the businesses today,” Sloan said at a Goldman Sachs conference. “We've talked about that a lot. I appreciate why that continues to be a question, but it's really not having much impact. And it's not really impacting what else we want to do and we're continuing to innovate, we're continuing to invest, we're continuing to hire really high-quality people. So, so far, so good.”