The year-long restriction New York state has imposed on Deloitte's financial advisory practice is likely to cast a shadow on its fintech consulting business, according to two executives in charge of tech operations at banks.

The two department heads said that despite the limited scope of a ban imposed by New York state, Deloitte's technology consultancy for banks could be affected by the recent regulatory action.

"I've used dozen of consulting firms in my twenty years working in financial services. I'll never work with one that has been involved in committing fraud or damaging the security of the banking system or our national security," said Bradley Leimer, vice president, online and mobile strategy at the $3 billion-asset Mechanics Bank in Richmond, Calif.

Leimer added that he believes regional and community banks will consider the settlement before signing new contracts for any services with Deloitte.

The New York State Department of Financial Services said Tuesday that it is fining Deloitte Financial Advisory Services $10 million as part of a settlement stemming from its anti-money-laundering advisory work with Standard Chartered in the middle of the last decade.

In 2004, the British financial services company paid Deloitte to take a look at its anti-money-laundering practices after New York regulators flagged it for compliance deficiencies.

The Deloitte unit did not help Standard Chartered break the law, but the regulator said it did violate banking law by removing information from the bank's final report to its regulator at Standard Chartered's request. Deloitte was also found to have disclosed confidential information about other clients to Standard Chartered.

The actions behind the ban reflect poorly on the consultancy's broader culture, Leimer said.

"It damages their reputation," he said. "The idea of sharing [information about] one bank to another" without the first bank's knowledge, "even if it's for defining fraud as part of an investigation, that needs to be fully disclosed."

The ban did not involve technology engagements and only affects state-chartered banks that need regulatory approval to hire Deloitte Financial Advisory Services, but bankers have steadily become more wary of consultants and tech vendors as regulators have increase scrutiny.

"Even big banks have gaps in vendor their management," said Mercedes Kelley Tunstall, of counsel at Ballard Spahr in Washington. "Vendor management continues to be a big focus for banks."

That places an even bigger focus on the consultants that evaluate tech startups on behalf of banks.

"In this kind of regulatory environment, any time a partner gets a stain on them, you have to take a hard look," said a technology executive at a bank with more than $10 billion in assets who spoke on the condition of anonymity. "As much regulatory light as has been shined, you have to have partners that are squeaky clean."

The settlement is likely to harm Deloitte's ability to attract new clients, at least the immediate future, the bank executive said.

"It's one thing to have a one-year ban on your business. It's another thing to actually get new business," he said.

They have "a bigger problem now. It's not the one-year ban, it's the fact that you are walking around trying to get new business and you have this stain on your sheet."

Banks don't enter into consultancy relationships with the idea that their information is going to be shared with competitors or the larger industry and attributed, Leimer said.

"To us, it's just not done," he said. "That's not how they should be working as a consulting company."

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