Toronto Dominion Bank Stock Tumbles

Toronto Dominion Bank (NYSE: TD) stock fell over 5% on Thursday following news of a potential $3 billion settlement regarding its anti-money-laundering practices in the United States.

According to the Wall Street Journal, citing sources familiar with the matter, TD’s U.S. unit is expected to plead guilty to failing to implement suitable systems to combat money laundering. The reported financial penalties arise from the bank’s incompetence in monitoring transactions linked to drug cartels.

The upcoming settlement will impose significant penalties and growth limitations for TD in the U.S. As part of the agreement with regulators, the Office of the Comptroller of the Currency (OCC) is likely to enforce an asset cap on TD’s retail operations, restricting any growth beyond a specified limit.

Additionally, the U.S. Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN) are expected to appoint independent monitors to ensure compliance with the settlement terms. The monitor from FinCEN is anticipated to remain for four years.

This settlement follows an extensive investigation that revealed significant flaws in TD's anti-money-laundering protocols, with authorities discovering that a Chinese criminal organization funneled millions through TD branches in New York and New Jersey.

As a result of these issues, U.S. regulators have increased their scrutiny of the bank’s internal controls, which led to the collapse of TD's planned $13.4 billion acquisition of First Horizon (NYSE: FHN) in May 2023.

In response to these regulatory challenges, TD has been reformatting its anti-money-laundering and investigations divisions, making several key personnel additions to enhance its compliance systems. Despite these efforts, the bank’s stock has fallen this year, diverging from the general market recovery.