Fighting money laundering is an issue of extreme international importance and regulators will not hesitate to take action against firms and senior individuals who fall short of expected and published standards.

 MLRO/MLCO risk and the consequences for them and their employer – FINES

In 2016 AML failings led the FCA to prohibit a bank MLRO from performing compliance oversight and money laundering-related functions at regulated firms and levy a £17,900 fine.

The Financial Conduct Authority (FCA) found acute and systemic weaknesses affected most levels of Sonali Bank (UK) Limited’s anti-money laundering (AML) control and governance structures.

Linked to this, the FCA considers the bank’s money laundering reporting officer (MLRO), Steven Smith, breached the Statements of Principle 6 (exercise due skill, care and diligence) as he failed to:

1. exercise due skill, care and diligence in managing the business of the firm;
2. take any of the steps open to an MLRO to address AML requirements; and
3. Demonstrate competence and capability.

Additionally, the FCA said he was knowingly concerned with the firm’s breach of Principle 3 (organise the business responsibly and effectively, with adequate risk management).

From the Final Notice, we can see the FCA expects the MLRO to:

1. explain AML resourcing requirements to senior leadership and take timely and effective steps to recruit resources for the firm;
2. embed a robust, well-resourced, money laundering reporting function and act as an effective person in the MLRO role;
3. provide relevant and accurate management information about the effectiveness of AML systems and controls;
4. provide specific training for and monitoring of staff compliance; not place excessive reliance on the general training provided to staff as a means of ensuring that staff understand their duties;
5. challenge risk indicators (e.g. low levels of suspicious activity reports); and
6. Process interrogation must be sufficient to identify serious compliance failures (e.g. levels of customer due diligence).

The FCA accepted that senior management did not well support mr Smith.

However, the FCA insists that in such cases an MLRO can take still steps to address AML compliance:

1. document and report concerns to senior management;
2. escalate concerns to the board,
3. risk and audit committees and external auditors;
4. take expert advice;
5. effectively utilise annual MLRO reports, and
6. report to the FCA (e.g. whistleblowing).

The FCA’s final notice states that:

1. “The role of the MLRO is a vital one in any regulated firm.
2. The implementation of adequate AML systems and controls requires an MLRO who takes a robust approach, ensures that AML responsibilities are understood at all levels of the organisation, has sound knowledge of the controls, ensures that regular testing and monitoring is carried out, and escalates concerns appropriately to senior management.”

The FCA identified a wide range failings (see sections 4 and 5 of the Final Notice) and as such MLROs and senior managers with compliance responsibilities are advised to use these as the basis of a review of how they fulfil their job specification and AML requirements. The FCA’s fine and ban against this individual is clearly intended to be a deterrent.

As this Final Notice indicates, failure to heed warnings from the regulator will count as an aggravating factor when assessing sanctions (see paragraph 6.12 in the Final Notice).

THE BANK AND THE FINE AND THE SANCTION

The Financial Conduct Authority (FCA) found acute and systemic weaknesses affected most levels of Sonali Bank (UK) Limited’s anti-money laundering (AML) control and governance structures.

The AML failings have led the FCA to ban a bank from accepting deposits from any new customers for 168 days and levy a £3,250,600 fine.

From the Final Notice, we can see the FCA wants firms to have:

1. an effective and cohesive board of directors and senior management team, which offer sufficient challenge on management information about AML compliance;
2. a robust, well-resourced, money laundering reporting function and an effective person in the role of money laundering reporting officer (MLRO);
3. effectual oversight of any branch network, with clear reporting lines;
4. monitoring systems, such as up to date and regularly upgraded software, capable of detecting compliance short falls; and
5. Adequate AML processes, procedures and policies, with meaningful practical guidance, training, and business ownership of compliance.

Although the fine is, of course, significant, the business prohibition is more so; while the bank’s major business (money remittance) is unaffected on paper, practically this type of sanction to another business line is likely to be a blow.

The FCA’s final notice states that:

• “The board and senior management failed to embed a culture of compliance throughout the firm and failed to provide adequate oversight to the MLRO department, which was under-resourced”.

As the accountability regime is now in place for banking (and steps are in place to widen this across the industry), individuals, as well as firms, need to heed the FCA’s warnings.

Do you want to know how Comsure can assist you – contact me to learn more.

FCA fine details – http://bit.ly/2e508ij