FCA anti-money laundering fines continue to mount up

Over the past few months, the FCA has handed out a string of significant financial penalties relating to anti-money laundering (AML) systems and controls failures at financial institutions in the UK.

Many of these enforcement actions have involved similar circumstances: an institution being made aware of weaknesses or deficiencies, but failing to adequately remedy them. It is clear that the FCA regards such circumstances as particularly egregious, and the resulting  penalties reflect this.

One of the FCA’s biggest-ever fines was imposed in early December 2022 following an investigation into historic AML failings at Santander in the UK. The penalty related to what FCA Executive Director of Enforcement Mark Steward described as “Santander’s poor management of their anti-money laundering systems and their inadequate attempts to address the problems”. Despite the bank being awarded a 30% discount to reflect the fact it settled with the regulator at an early stage, it received a fine of £107.7 million.

According to the FCA’s Final Notice, at the end of December 2012 Santander UK became aware of weaknesses in its AML systems and controls. An FCA review the following year found that although the bank had begun to improve its AML framework, there remained numerous significant weaknesses. Despite Santander’s further investment in an extensive Financial Crime Transformation Programme between 2014 and 2016, the FCA still found that “significant deficiencies continued to exist” in the AML control framework for business banking and the regulator concluded that this affected the bank’s ability to mitigate relevant money laundering and financial crime risks.

The Final Notice makes interesting and useful reading. It includes a catalogue of failings, which the FCA has naturally sought to make the most of in its press release. However, it will also prove useful for financial institutions who are in the throes of their own AML systems reviews. The notice provides a detailed account of the deficiencies in Santander’s governance and financial crime framework, including a lack of first-line ownership of risk and clarity about the way in which information flowed between teams. It also identified various operational issues including Santander’s treatment of customers, how it risk-rated them, the level of ongoing monitoring conducted, a lack of suspicious activity reporting, and weak account closure processes. In addition, Santander’s training of staff was found to be insufficiently targeted at specific roles and deficient.

What becomes clear when reading of Santander’s experience is that throwing money at a problem like this is not enough – implementing a truly effective AML frameworks requires a careful and targeted investment, and buy-in at all institutional levels, with an eye always on ensuring that a sufficiently risk-based approach is taken.

Santander’s fine was followed by two others in December 2022: a £10 million penalty for Metro Bank and one of nearly £30 million for TSB Bank. The total amount of fines issued by the FCA in 2022 reached £215.8 million, of which approximately two-thirds specifically related to financial crime failings.

The FCA began 2023 by announcing two AML-related enforcement actions. The first was against Guaranty Trust (UK) Bank; this was, in fact, the second final notice the bank had been given by the FCA, which proved to be an aggravating factor in calculating the fine. The FCA did, however, award a 30% discount for early settlement, brining the final penalty to £7.6 million.

The FCA also fined Al Rayan Bank PLC £4 million for breaches which included serious deficiencies in the bank’s enhanced due diligence processes, such as failing to adequately check high-risk customers’ source of wealth and source of funds. These failures were aggravated by the bank’s omission to remediate weaknesses which the FCA had pointed to over several years. Al Rayan was also given the benefit of a 30% discount for agreeing to settle at an early stage.

This ongoing enforcement trend may appear to reflect a more aggressive regulator, and a ‘crackdown’ on bad practice in the industry, and accords with the expectation we set out in our update earlier in 2022. However, complex AML investigations do, of course, take time and it appears that this apparent spike in penalties is in part the natural outcome of a trend observed in the period 2016 to 2018 when the FCA began opening more AML-related investigations.

As noted, the Santander case related to historic failings in oversight and management of its AML systems (the relevant period being 31 December 2012 to 18 October 2017), and the Metro Bank case related to a breach of UK listing rules in an October 2018 market announcement.

Whatever the reasons behind the statistics, it is clear that the FCA will be buoyed by these successes and the enforcement trend is likely to continue throughout 2023.

FURTHER INFORMATION

If you have any questions regarding the blog above, please contact James Alleyne or a member of our Criminal team.

ABOUT THE AUTHORS

James Alleyne is Legal Counsel in the firm’s Financial Services Group. He advises clients on the full spectrum of financial services and FCA-related matters, including on authorisation applications, perimeter and supervisory issues, enforcement investigations and cases before the Regulatory Decisions Committee and Upper Tribunal.