Has the FCA started as it means to go on?

by Dechert LLP
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Has the Financial Conduct Authority (“FCA”) in the UK started as it means to go on? The FCA recently fined a UK subsidiary of a private Swiss Bank for failing to establish and maintain effective anti-money laundering controls for high risk customers. The total fine amounted to £4.2 million, which included a 30% discount due to the bank’s cooperation with the FCA over the matter. Importantly in its decision, the FCA noted that while the bank was a firm which had good policies and procedures on paper, in practice it manifestly failed to ensure that it was addressing its AML risks.

The action against the bank was taken following an FSA thematic review conducted in 2010 and 2011 which uncovered failings in the bank’s AML systems and controls. The fine imposed on the bank follows a recent trend:

  • In March 2012, the FSA fined a US private bank £8.75 million for failing to take reasonable care to establish and maintain effective anti-money laundering systems. 
  • In May 2012, the FSA fined another privately owned Swiss bank £525,000 for having inadequate anti-money laundering controls. It also fined the bank’s Money Laundering Reporting Officer (MLRO) £17,500 for failings in performance of the money laundering reporting controlled function. 
  • In August 2012, the FSA fined a UK subsidiary of a Turkish bank £294,000 for money laundering failings.

Additionally, the FCA’s predecessor, the enforcement arm of the Financial Services Authority (“FSA”), fined a well known high street bank £5.6 million in 2010 for failing to have adequate systems and controls in place to prevent breaches of UK financial sanctions. While the prosecution was for breach of UK/EU sanctions, the fine was imposed on the basis of the Money Laundering Regulations 2007 (the Regulations) which require that firms maintain appropriate policies and procedures in order to prevent funds or financial services being made available to those on the sanctions list.

Compliance with domestic and international AML and sanctions regimes has become one of the key challenges for financial institutions. While prosecutions in the UK are not on the same scale as those “across the pond” they are certainly on the rise. Given their key role in facilitating global trade and the international economy, financial institutions are coming under increasing scrutiny to ensure that their systems and controls are effective in managing the risks associated with AML and international sanctions. In the UK, both the FCA and HM Treasury are keen to prove that the UK Government takes compliance with these requirements seriously and to demonstrate their willingness and ability to enforce compliance with UK/EU regulations to their US counterparts.

FSA to FCA

As of 1 April 2013, the FSA was finally split into two separate entities in line with UK Government proposals made back in 2011. The Prudential Regulation Authority (“PRA”), a subsidiary of the Bank of England, has responsibility for the supervision of deposit takers, insurers and a small number of significant investment firms. The FCA has responsibility for regulating conduct in retail and wholesale markets, and will operate with the single strategic objective of protecting and enhancing confidence in the UK financial system.

On the basis of the recent fine imposed on EFG and the comments made by the FCA’s head of enforcement and financial crime, Tracy McDermott, that “the FCA will continue to focus on high risk customers and business”, it seems that the FCA will be picking up where the FSA left off.

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  • Undertaking internal investigations on the back of whistleblower reports or as the result of an internal audit or an external auditor’s findings.
  • Supporting clients subject to external investigations precipitated as the result of intervention by an external law enforcement agency or regulatory authority.
  • Building knowledge and awareness at board and senior executive level through our tailored training programmes, which include the use of our training film "A Price Worth Paying?" written by one of our London partners.
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  • Provision of detailed risk assessments in relation to prohibited activity and what may yet be commercially viable, legitimate business opportunities in particular for capital market transactions, global transaction banking, international money markets, corporate financing, trade financing and insurance/re-insurance. 
  • Interpretative advice on the jurisdictional reach of sanctions regulations. 
  • Developing internal compliance programs that are tailored to a company’s structure, resources and individual risk profile.
  • Drafting of license applications and requests for advisory opinions on specific sanctions issues. 
  • Conducting compliance assessments and internal investigations to test and benchmark internal systems and controls.
  • Acting as counsel for clients and representation regarding disclosures to government enforcement agencies.

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