Argentina has suspended Citigroup’s local subsidiary from conducting operations in the country’s capital markets saying the bank violated local laws by reaching a deal with the hedge funds that are embroiled in a long standing legal tussle with the country.

The bank recently made a deal will billionaire Paul Singer-controlled NML Capital, as well as other major holdout funds regarding the legal dispute at New York courts over Argentine-law bonds.

"The deal allows Citibank Argentina to process interest payments, due to expire on March 31 and June 30. But the agreement only applies to Citibank. That means it leaves all other entities that take part on the bond payment process without any protection," said CNV), the official body responsible for the promotion, supervision and control of equity markets in Argentina.

"The deal also shows Citibank’s intent to leave its custody business in Argentina, creating uncertainties among bondholders. A future custodian wouldn’t be able to process payments as the deal only applies to Citibank."

The move was based on the Capital Markets Law, which allows for the suspension of financial entities when there are uncertainties over interest payments to bondholders.

However, the American lender’s commercial banking business in Argentina is not likely to bear any impact due to the suspension.