The US Federal Reserve on Friday ordered troubled commercial banking giant Wells Fargo to halt its expansion until it improves its governance, following "pervasive and persistent misconduct." The Fed order restricts the bank from growing any larger "until it sufficiently improves its governance and controls," and comes as the company struggles to recover from the two-year-old scandal in which it uncovered millions of phony accounts created without consent of customers. "We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," outgoing Fed Chair Janet Yellen said in a statement. "The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers," she said in what was perhaps her last official act as Fed chair. The statement said Wells Fargo had prioritised growth over ensuring effective risk management. Wells Fargo became engulfed in scandal in 2016 after admitting its employees had opened 3.5 million phony deposit accounts and lines of credit without the knowledge of its clients as part of high-pressure retail sales tactics the bank touted to investors but has since repudiated. This led to damaged credit scores and millions in unjustified fees for customers. Wells Fargo has paid $185 million in fines and offered redress to harmed customers.
In October, CEO John Stumpf stepped down in the wake of the scandal, which cost it the top ranking as the world's largest bank by market capitalization. The Fed specifically cited the need to strengthen oversight by the bank's board of directors, and sent letters outlining the failures to Stumpf and another former director. Concurrently with the Fed action, Wells Fargo will replace three current board members by April and a fourth by the end of the year.