TD's Anti-Money Laundering Deficiencies Pose Increasing Concerns

Additional shortcomings in TD's anti-money laundering (AML) program, controls, and operational risk management practices have surfaced. These new developments have increased our concerns that these AML deficiencies will take longer to cure and could have a larger and more adverse impact on the Bank's franchise and earnings power. Despite these developments, we view the Bank's recent core earnings performance, ongoing ample liquidity, and solid capital buffers as supportive of our credit ratings.

Key highlights

-- Recent media reports have connected TD to a U.S. $653 million fentanyl drug money-laundering case, amplifying our concerns related to the Bank's AML deficiencies.

-- To date, TD has invested more than $500 million in remediation efforts to enhance its AML program. However, there are future headwinds to earnings as further investments in TD’s risk and control infrastructure are needed, the Bank anticipates additional monetary penalties, and we believe that there is the potential for nonmonetary penalties.

-- Developments that broaden the extent of risk management control deficiencies and/or increase the potential for more prolonged negative impacts to TD's franchise or earnings power are likely to have negative credit ratings implications.

“Regulators are in the process of conducting in-depth investigations, which may reveal other related and/or nonrelated issues. We will closely monitor ongoing updates and the final outcomes of the regulatory and law enforcement investigations, including the magnitude of total fines and clarity on any restrictions imposed on the Bank's U.S. retail operations,” said Carl De Souza, Senior Vice President and Sector Lead, North American Financial Institution Ratings.