Investing.com -- Norway’s sovereign wealth fund has placed Toronto Dominion Bank (TSX:TD) under observation for four years, citing sustained risks related to serious financial crime. The decision, disclosed late Wednesday, reflects a recommendation by the fund’s independent ethics council and underscores the rising scrutiny facing global banking institutions.
The Government Pension Fund Global, managed by Norges Bank Investment Management, said the council’s recommendation found “an unacceptable risk that the company contributes to or is responsible for gross corruption or other serious financial crime.” The move follows TD’s $3.09 billion fine and guilty plea last year over anti-money-laundering failures in the U.S., adding to previous compliance issues dating back over a decade.
“The council’s investigations have found that TD may be linked to multiple cases of financial crime the past 10–15 years,” the council said in its statement. It also referenced a 2013 penalty relating to the bank’s earlier failure to meet U.S. anti-money-laundering laws.
While the council acknowledged TD’s efforts to strengthen internal controls and overhaul management, it raised concerns about the scale and execution of these changes. “Nevertheless, the council considers that the extent to which these plans will be realized within the indicated time period remains uncertain, especially in light of the significant amount of work that remains to be done to create a good compliance culture within the company.”
Norges Bank noted that it had not independently assessed all elements of the recommendation but found the council’s findings sufficiently substantiated. It also considered alternate measures, such as active ownership or engagement, but concluded these were not suitable in this instance.
The decision places TD Bank among a small group of companies under formal observation by the fund, which holds a 1.05% stake in the Canadian lender as of year-end 2024. Under the fund’s ethical guidelines, companies can be excluded or placed under watch for violations including corruption, environmental damage, and human rights abuses.
Observation status allows the fund to monitor the company’s conduct while maintaining its investment, leaving open the possibility for future divestment based on the evolution of compliance efforts. The ethics council’s next review will assess how effectively TD enacts its reforms and mitigates the risk of financial wrongdoing.
