The regulator requires the bank to suspend dollar clearing at the Hong Kong subsidiary for high-risk retail business clients, and exit high-risk client relationships within certain business lines at its branches in the UAE.
SCB will exit high-risk small and medium business clients in 90 days, failing which it has to suspend US dollar clearing through the New York branch for those clients.
The bank needs to take prior approval from DFS to service new dollar-clearing clients or accounts across its operations.
The restrictions on SCB’s operations are a result of its failure to comply with the monitoring systems agreed with the DFS in 2012.
Superintendent of financial services Benjamin Lawsky said: "If a bank fails to live up to its commitments, there should be consequences.
"That is particularly true in an area as serious as anti-money-laundering compliance, which is vital to helping prevent terrorism and vile human rights abuses."
SCB paid $667m to US regulators in 2012 for enabling money transactions involving Iran, Myanmar, Libya and Sudan. The DFS appointed an independent monitor after the 2012 agreement.
It was found by the monitor that the bank’s own monitoring system did not detect potentially high-risk transactions mainly originating from its branches in Hong Kong and the UAE.
The DFS said: "SCB failed to detect these problems because of a lack of adequate testing both before and after implementation of the transaction monitoring system, and failed to adequately audit the transaction monitoring system."
