Toronto-Dominion Bank (TD) has announced sweeping changes in leadership and compensation as it grapples with the fallout from significant anti-money laundering (AML) failures in its U.S. operations.

The changes include the expedited appointment of Raymond Chun as CEO and group president, along with pay cuts for 41 executives tied to the compliance lapses.

Chun, previously TD’s chief operating officer, will assume the CEO role on February 1, two months earlier than originally planned.

The accelerated transition also hastens the departure of Bharat Masrani, who has served as CEO for nearly a decade and spent 38 years at the bank. Masrani will remain in an advisory capacity until July 31 to support the ongoing AML remediation efforts.

“I want to once again extend the Board’s thanks to Bharat for his almost four decades of service to the Bank and for his many contributions to TD’s success,” TD board chair Alan MacGibbon said in a statement.

Pay Cuts Start at the Top

In an effort to demonstrate accountability, TD announced C$30 million ($20.8 million) in variable compensation reductions for 41 current and former executives.

The bank said the cuts target those responsible for front-line operations, control functions, and internal auditing.

Masrani himself saw his total direct compensation for 2024 slashed by 89%, from C$13.3 million ($9.2 million) in 2023 to C$1.5 million ($1 million). Notably, he received no cash incentive or equity awards for the year, a decision TD attributed to the gravity of its compliance failures.

“These reductions reflect the seriousness of the U.S. AML failures, the associated costs to the Bank, and the limitations imposed on the U.S. retail business,” TD stated.

Other senior executives also faced significant pay cuts, with variable compensation reduced by at least 25% from prior targets. The bank plans to provide more details on executive pay adjustments in its proxy filing this March.

Compliance Aftershock Sparked Record Penalties

The compliance lapses have proven costly for Canada’s second-largest bank. In October, TD reached a plea agreement with the U.S. Department of Justice, admitting to deficiencies in its AML controls that allowed millions of dollars linked to illicit fentanyl trafficking to flow through its accounts.

The settlement included a $3.09 billion fine, one of the largest penalties ever imposed for AML failures. Additionally, the Office of the Comptroller of the Currency capped TD’s U.S. retail business assets at $434 billion, further constraining the bank’s operations.

Chun, who has already initiated a review of TD’s strategy, operations, and investments, is expected to spearhead efforts to restore the bank’s credibility in compliance. “We are excited to have Ray take the helm and lead TD into the future,” MacGibbon said.

Board Response Heralds Fundamental Change

TD also announced significant changes to its board of directors, with MacGibbon set to step down by the end of the year. The bank’s corporate governance committee has launched a search for his successor.

Five other board members, including Amy Brinkley, Colleen Goggins, and Karen Maidment, will leave following TD’s annual shareholder meeting on April 10. Four new nominees, including compliance veteran Frank Pearn and finance executive Paul C. Wirth, will be up for election.

The leadership and board changes, coupled with the compensation cuts, underscore TD’s efforts to rebuild trust with regulators, shareholders, and the public after the AML failures tarnished its reputation.

As Chun prepares to take the reins, the bank faces the dual challenge of navigating regulatory scrutiny while positioning itself for future growth.