Regulators slapped Citigroup (C) with $136 million in fines for failing to resolve long-standing deficiencies surrounding controls and risk management, a setback for CEO Jane Fraser as she tries to turn around the giant New York bank.

The Federal Reserve and the Office of the Comptroller of the Currency announced the action late Wednesday, just two days before Citigroup is set to report its second-quarter earnings.

The regulators said Citigroup made insufficient progress on problems first identified in a 2020 consent order, which required Citigroup to address deficiencies in its enterprise-wide risk management, compliance risk management, data governance, and internal controls.

"While the bank’s board and management have made meaningful progress overall, including taking necessary steps to simplify the bank, certain persistent weaknesses remain, in particular with regard to data," said acting Comptroller of the Currency Michael J. Hsu.

Citigroup will pay the OCC $75 million and the Fed $60.6 million, on top of $400 million Citigroup previously paid as part of the 2020 consent order.

Fraser responded Wednesday with her own statement, saying that "we’ve always said that progress wouldn’t be linear, and we have no doubt that we will be successful in getting our firm where it needs to be in terms of our transformation."

The CEO added that "we’re committed to spending what is necessary to address our consent orders.”

Citigroup’s stock dropped more than 1% in after-hours trading Wednesday. Its stock has risen more than 26% since the beginning of the year, outperforming all other big bank rivals.

The slap from regulators comes as Citigroup tries to pull off a dramatic transformation meant to revive its stock price and remove decades of bloat.

The makeover under Fraser, who took over as boss in March 2021, began roughly two years ago as she tried to focus the company on serving big, multinational corporations, shed what wasn't profitable, and operate more efficiently.

That meant pulling back from consumer banking in various parts of the world. It also meant cutting jobs and reorganizing business lines as part of an internal restructuring that Fraser called the "most consequential" change to how Citigroup operated in nearly two decades.

The strategy amounted to an unwinding of a 1990s-era "financial supermarket" that claimed to offer any and all services needed by consumers, businesses, and governments.

Its most recent effort to convince investors it was heading in the right direction came last month as Fraser and other bank executives made a series of investor presentations focused primarily on its multinational services division, which helps corporations move money around the world.

CFO Mark Mason in his presentation referred to 2024 as an "inflection year" and said by 2026 Citigroup plans to grow its full-year revenue by at least $6 billion while lowering its expenses by at least $500 million.

But both Fraser and Mason also acknowledged at the June event that the bank still had work to do to bolster its regulatory and compliance functions.

"We recognize there are places where progress has been too slow, so we have intensified our efforts in areas such as regulatory processes and the related data remediation,” Fraser said in June.

Another regulatory blow came days later when regulators found weaknesses in "living wills" submitted by Citigroup and three other large banks detailing how the lenders would wind themselves down if something catastrophic were to happen.

The shortcomings in the 2023 plans happened when banks were asked to simulate an unwind of their derivatives and trading positions in two scenarios with different time frames.

In the case of Citigroup, regulators said the weakness had to do with a shortcoming identified in its 2021 plan "regarding resolution data integrity and data management issues."

The FDIC said it found Citigroup’s plan weak enough to be considered a more serious "deficiency," while the Fed stuck with the less severe "shortcoming" rating.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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