There is no doubt that financial crime remains at the forefront of the FCA’s agenda. This latest fine levied against Standard Chartered bank is the second largest financial penalty the FCA has imposed for AML failings.
While at a global level the Financial Action Task Force continues to examine and develop global measures towards the prevention of financial crime, at a European level, the Fifth Money Laundering Directive is now on the horizon as the UK release a consultation paper on the proposed steps for its transition into UK law.
Now more than ever it is essential that financial crime remains top of your agenda. Find out how we can help.
Fifth Money Laundering Directive consultation
On 15 April, the HM Treasury released a consultation paper seeking views from the industry on the transposition of the Fifth Money Laundering Directive (5MLD). This consultation concerns the steps the Government is proposing to meet the UK’s expected obligation to transpose the Directive into national law.
The amendments 5MLD intends to make to the Fourth Money Laundering Directive are designed to strengthen transparency and the existing preventative framework, whilst ensuring the UK adheres to international standards set by the Financial Action Task Force.
Consultation responses are required by 10 June 2019.
Standard Chartered’s failings
The FCA imposed financial penalty of £102,163,200 for failings in AML controls, specifically for breaches in the UK Wholesale Bank Correspondent Banking business and their United Arab Emirates (UAE) branches, two areas of the business that the bank had identified as high risk.
The FCA’s investigation concluded that Standard Chartered had insufficient policies and procedures in place to mitigate AML risks. Furthermore, there was no evidence to demonstrate that UAE branches were applying UK equivalent AML controls (a requirement of Money Laundering Regulations).
Key areas of deficiencies in Standard Chartered’s controls surrounded their approach to identifying and mitigating risks, inadequate oversight of the Bank’s risks and controls, insufficiencies in customer due diligence and ongoing monitoring, weaknesses in escalating risks and setting a positive AML compliance culture. It was found that insufficient controls in these areas increased the bank’s risk to money laundering and/or breaches of sanctions. There were a number of examples of poor practice that did not meet regulatory expectation, specifically:
- The FCA uncovered that an account with the bank had been opened with 3 million UAE Dirham (£500,000) in cash in a suitcase. The bank had failed to provide sufficient evidence that the origin of the funds had been investigated and identified as legitimate.
- It was also found that they had failed to collect sufficient information on a customer exporting a potentially military affiliated commercial product. The product was exported to over 75 countries including two jurisdictions where armed conflict was, or was likely to be, taking place.
- Another example that sparked concern was that Standard Chartered failed to review due diligence on a customer who had received repeated red flags, including blocked transactions from other banks indicating a link to a sanctioned entity.
These failings occurred in the UK Correspondent Banking business during the period from November 2010 to July 2013 and in its UAE branches during the period from November 2009 to December 2014.
The view that Standard Chartered’s policies and procedures were insufficient was shared by the US authorities who have also taken action by fining the bank $947m. In response, the bank has since undertaken remediation work and has been acknowledged for both this, and its cooperation which has been said to have reduced the financial penalty imposed. Standard Chartered’s agreement to accept the FCA’s findings meant it qualified for a 30% discount, reducing its fine from £145,947,500.
Financial crime healthcheck
Financial crime continues to be one of the most significant risks to financial services in the UK. The FCA view financial crime prevention as intrinsic to market integrity, and so expect a lot from all regulated firms with regards to appropriate safeguards, processes and controls. These expectations are evolving and over the last few years we have seen the introduction of a range of new requirements for firms.
Never has it been so important to know how well your financial crime framework is working. A healthcheck can be a cost effective way to not only test the levels of financial crime compliance within your firm (a review covers all areas typically covered in a regulatory visit), but to gain insight of the latest best practice approaches and how they can be incorporated into your existing financial crime approach.
We look at all aspects of financial crime, taking into account the latest relevant regulation and provide you with a thorough assessment of the strengths and weaknesses of your businesses financial crime risks. Find out more.
How we can help
As well as offering financial crime healthchecks, we also provide a wide range of other services that will be tailored specifically to your firm’s needs and activities. This includes:
- Deep Dive reviews: This targeted review focuses on key areas identified by you and will enable you to ascertain specific insight, or address specific regulatory concerns.
- Framework enhancement: It is essential that the financial crime framework you have in place at your firm is appropriate, effective and tailored to your business. We can assess your current framework, and if necessary work with you to develop your documentation (policies, procedures and firm-wide risk assessments) based on current regulatory requirements and industry best practice, and tailored to your business model.
- Skilled Persons reviews (S166 reviews): Should your firm become subject to a skilled person review, BDO is a listed firm on the Financial Crime Lot Panel and we have the experience and capability to undertake the review to a high standard.
- Firm-side S166 support: We also have the expertise to support you through the S166 process. This can include conducting a health check before the Skilled Person visit, advising on which Skilled Person suits your business the best, preparing documentation for the Skilled Person and conducting interview training for those likely to be interviewed by the Skilled Person.
- Remediation projects: Where an issue has been identified, or you have a concern about the implementation of certain requirements, we can work with you to build a tailored remediation programme in line with the Regulator’s expectations to help you build a comprehensive action plan.
- Regulatory visits: If your firm is to receive a visit from the FCA, it is important that your preparation is bespoke and proportionate. We can assist you with understanding on what to expect during the visit to make sure you are fully prepared.
- Training: It is essential that your employees are aware of your financial crime framework and their obligations under it. We provide training tailored to your business to ensure that your employees are aware of their specific obligations.
If we can be of assistance, or if you would simply like a sounding board about any concerns, then please contact us.