FCA case against CACEIS UK raises points of interest for practitioners

CACEIS UK, an asset servicing bank, has been censured by the FCA and will make a £31.7m voluntary payment to WealthTek clients for failing to act on information that left clients exposed to the risk of financial crime.
 

Background Facts
 

In October 2020, CACEIS UK (the UK-based branch of the French headquartered CACEIS), was preparing for a merger with KAS Bank, following which WealthTek (at the time named Vertus) was to become a client of CACEIS UK.

In advance of the merger, between 7 August 2020 and 1 November 2020, CACEIS UK started preparing for the migration of client accounts from KAS UK. This included conducting a risk assessment of WealthTek, which classified the firm as low risk based on various factors including the purpose of the account, the size of deposits and the nature of the business.

On 26 October 2020, CACEIS UK also conducted a check of the FCA’s public register to confirm the scope of WealthTek’s regulatory permissions. Through these checks, CACEIS UK identified that WealthTek did not have permission to safeguard and administer investments.

Over the weekend of 5 - 6 December 2020, the migration of client accounts from KAS UK to CACEIS UK commenced. Following this, CACEIS UK made client accounts on its platform available to WealthTek.

Failings
 

The FCA’s Final Notice identified various regulatory breaches by CACEIS UK. This included failing to ensure that WealthTek held appropriate regulatory permissions to “safeguard and administer” investments prior to the migration. Instead, the accounts were simply migrated and made available without CACEIS UK taking any other steps to ensure that appropriate permissions were in place.

These failures were not a one-off occurrence. On three occasions between 1 October 2020 and 4 April 2023, it came to CACEIS UK’s attention that the FS Register continued to show that WealthTek did not have the requisite permissions in respect of clients’ assets, yet failed to take any appropriate steps to address or mitigate any risks arising from this.  

In addition, CACEIS UK also failed to identify that the publicly available FS Register clearly showed WealthTek being subject to a restriction on the holding client money. Consequently, CACEIS UK permitted WealthTek to hold client money in its client accounts, without considering the associated risks that might arise and how these be mitigated. It was not until WealthTek sought an update to the contractual documentation to reflect its current name that CACEIS UK identified the issue and took action.

Finally, whilst CACEIS UK had put in place policies and procedures for the ongoing monitoring of accounts, in practice it failed to conduct sufficient ongoing monitoring to ensure it understood the risks arising from those accounts.

Sanctions
 

The FCA determined that CACEIS UK failed to take sufficient steps to mitigate the risk of misappropriation and/or money laundering in connection with the client accounts it held for WealthTek. It was also held that CACEIS UK failed to conduct its business with due skill, care and diligence, in breach of Principle 2 of the FCA’s Principles for Businesses.

Significantly, however, the FCA took into account the full and significant co-operation shown by CACEIS UK throughout the investigation and during the settlement period. This included the fact that CACEIS UK had made a voluntary ex-gratia payment of £31,714,068 to be distributed to WealthTek’s clients. According to the FCA’s joint Executive Director of Enforcement, Therese Chambers, “the firm chose to do the right thing with extensive co-operation and agreeing to a substantial voluntary payment. We decided not to impose a fine as a result’.

In these circumstances, the FCA did not consider that it would be appropriate to require CACEIS UK to pay a financial penalty and instead imposed a public censure.  

Lessons
 

Perhaps most significantly, the FCA concluded its investigation in 13 months. This is a very short period of time and clearly shows that the FCA’s recent focus on increasing the pace of its investigations is paying dividends.

The imposition of a public censure is also interesting; it is a tool rarely used by the FCA, yet demonstrates that the FCA can adopt a pragmatic and flexible approach to Enforcement outcomes, aside from the usual imposition of a financial penalty. In this regard, however, we note that the FCA is clear that had the voluntary payment not been made by CACEIS UK, a financial penalty of £32.9m (before discount) would have been imposed. As such, it is not unreasonable to suggest that the financial impact on the firm of this voluntary payment is largely identical to a potential financial penalty. 

The way the FCA has treated cooperation, including Therese Chambers’ remarks, is also unusual. The firm has been given significant credit for its strong cooperation during the investigation, which has included responding promptly to information requirements, proactively providing explanatory information (and adopting a collaborative approach to such) and accepting the fallings at an early stage which has, by extension, saved the FCA both time and resource.

Typically, however, these are all things that are expected of any regulated firm under investigation, and it is highly unusual for such extensive credit to be given for this. This certainly raises the question of whether the FCA is seeking to incentivise those under investigation to simply accept the FCA’s case without challenge (beyond the usual 30% discount). It will be particularly interesting to see whether the FCA offers all such cooperating parties similar levels of credit in future cases.     

About the authors

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

Asha is a Trainee Solicitor currently in her fourth seat with the Criminal Litigation team. Asha joined Kingsley Napley in September 2024.