Banks warned to turn away money-laundering risks or face FSA action
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The FSA has referred two banks to its enforcement division after spotting a number of serious weaknesses in their systems and controls for managing high-risk customers.
In its thematic review of banks’ management of high money-laundering risk situations, published last week, the regulator says it is also considering taking action against other banks.
The FSA says it found serious weaknesses with a number of banks during the review. It claims a number of banks appeared unwilling to turn away or exit very profitable business relationships when there seemed to be an unacceptable risk of handling the proceeds of crime.
It says: “Around a third of banks, including the private banking arms of some major banking groups, appeared willing to accept very high levels of money-laundering risk if the immediate reputational and regulatory risk was acceptable.”
The FSA says more than half of the banks failed to apply meaningful enhanced due diligence in higher-risk situations, which then saw them fail to spot adverse information about the customer or the customer’s beneficial owner.
It claims one-third of banks dismissed allegations about customers without an adequate review.
It found a third failed to spot politically exposed persons, meaning individuals who are, or have been at any time in the previous year, entrusted with a prominent public function by a non-UK country, the European Community or an international body.
The definition also covers that person’s family members and close associates.
The FSA says three-quarters of the banks reviewed failed to take adequate measures to establish the legitimacy of the source of wealth and the source of funds to be used in the relationship.
The regulator expressed concern that some banks’ anti-money laundering risk assessment frameworks are not robust enough and that others fail to put significant safeguards in place to mitigate a conflict of interest between relationship managers.
The FSA also deemed onethird of banks’ customer due diligence inadequate and found that some banks were unable to easily provide an overview of their high-risk and politically exposed persons.
CMS Cameron McKenna partner Alison McHaffie says: “The FSA is not mincing its words over the serious failings it has found in some private banks’ financial crime controls. The warning is clear - do your checks properly and be prepared to turn down high-risk business or the FSA will come knocking.”
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