The Financial Services Authority (FSA) has fined the bank Coutts & Company (Coutts) £8.75m, for failing to take reasonable care to establish and maintain effective anti-money laundering (AML) systems and controls relating to high-risk customers, including Politically Exposed Persons (PEPs).
The banking regulator said that the failings at Coutts were serious, systemic and were allowed to persist for almost three years. They resulted in an unacceptable risk of Coutts handling the proceeds of crime.
In October 2010, the FSA visited Coutts as part of what the regulator termed a thematic review into banks’ management of high money-laundering risk situations. After that visit, the FSA’s investigation identified that Coutts did not apply robust controls when starting relationships with high-risk customers and did not consistently apply appropriate monitoring of those high risk relationships. In addition, the FSA determined that the AML team at Coutts failed to provide an appropriate level of scrutiny and challenge.
The FSA identified deficiencies in nearly three quarters of the PEP and high risk customer files reviewed. Briefly, ‘politically exposed persons’ (PEPs) are deined as individuals whose prominent position in public life may make them vulnerable to corruption. The legal definition extends to immediate family members and known close associates of such individuals. Specifically, in one or more of each inadequate file Coutts failed to:
1. gather sufficient information to establish the source of wealth and source of funds of its prospective PEP and other high risk customers;
2. identify and/or assess adverse intelligence about prospective and existing high risk customers properly and take appropriate steps in relation to such intelligence;
3. keep the information held on its existing PEP and other high risk customers up-to-date; and
4. scrutinise transactions made through PEP and other high risk customer accounts appropriately.
Tracey McDermott, acting director of enforcement and financial crime, said: “Coutts’ failings were significant, widespread and unacceptable. Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures. Coutts was expanding its customer base which increased the number of high risk customer relationships. The regulatory environment in relation to financial crime had also changed. It is therefore particularly disappointing that Coutts failed to take appropriate steps to manage its AML risks. This penalty should serve as a warning to other firms that, not only should they ensure they constantly review and adapt their controls to changing financial crime risks within their businesses, but that they must also make changes to reflect changing regulatory or other legal standards.”
As a result of the FSA’s review, a number of improvements and recommendations have already been, or are being, implemented. These include significant remedial amendments to PEP and other high risk customer files to ensure that appropriate due diligence information about Coutts’ customers has been assessed and recorded.
Coutts agreed to settle at an early stage and therefore qualifies for a 30pc discount. Were it not for this discount, the FSA would have imposed a financial penalty of £12.5m.
Notes
In June 2011 the FSA published its findings following a review of how banks manage their money laundering risks. The review focused on the management of high risk customers (including PEPs), correspondent banking relationships and wire transfer payments.
