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 paper, Banks’ management of high money-laundering risk situations, the regulator says that it is considering further action in relation to other banks and that further cases may be referred to the enforcement division. The FSA says that it found serious weaknesses in regards to a number of firms including its review of anti-money laundering risk-management.
The FSA says that a number of banks appeared unwilling to turn away, or exit, very profitable business relationships when there appeared 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 risk levels of money-laundering risk if the immeadiate reputational and regulatory risk was acceptable.”
The FSA says a number of banks, particularly smaller banks, carried out inadequate due-diligence or none at all. The regulator says that around three quarters of banks, including a number of major institutions in its sample, are not always managing high-risk customers and PEP relationships effectively.
The FSA says that over 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 says a third of them failed dismissed allegations about the customers without adequate review.
It also says a third of banks failed to spot politically exposed persons, while 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.
Other concerns included some banks anti-money laundering risk-assessment frameworks not being robust enough; some banks failing to put significant safeguards in place to mitigate relationship managers having a conflict of interest and that a third of bank’s customer due-diligence was found to be inadequate and that some banks were unable to give them an overviewof their high risk and PEP customers easily. The FSA says nearly half the banks in its sample failed to review high risk or PEP relationships regularly.
The FSA says that given the nature of its findings, the management of high-risk customers – including politically exposed persons – is likely to remain a focus of its anti-financial crime work for some time to come