ABA Corporate Member Mishcon de Reya's latest Enforcement Watch publication provides some useful comments and guidance on the Financial Conduct Authority's 2017/18 Annual Money Laundering Report. The Authority is broadening its approach to include investigations of smaller firms.
Mishcon de Reya: Enforcement Watch
Mishcon de Reya has published an important note on a regulatory action recently taken by the Financial Conduct Authority (FCA) against Canara Bank in respect of anti-money laundering control failures. Canara Bank has been fined £896,100 and prevented from accepting deposits from new customers for 147 days. Canara is an Indian bank, and the enforcement action applies to its branches in London and Leicester. Mishcon's note can be seen here.
The essence of the case is that Canara Bank did not respond appropriately to remedy deficiencies that the FCA had identified during a visit in 2012/13. Canara notified the FCA that it had taken steps to remedy the weaknesses, but when the FCA visited in 2015 it discovered that the remedies were ineffective.
Mishcon says that Canara failed to appreciate the seriousness of AML failings identified by the FCA. It notes that the FCA was particularly scathing of senior management who were unable to articulate the level of understanding expected, and did not test or review the remediation action that the bank had taken following an FCA visit in 2012/13.
It is a common approach for overseas banks to second senior management from their home country to the UK to gain experience of different areas of the bank and ensure management consistency. But Mishcon notes that in the case of Canara this practice contributed to the failings, and that the FCA expects executives being seconded into the UK to receive 'extensive training' on UK regulation before they start work.
Mishcon provides useful commentary on other enforcement cases through its Enforcement Watch newsletter.
The most recent newsletter describes the liability that principals have when one of their appointed representatives behaves inappropriately (principals may have more liability than they think); and it considers the ability of companies to claim 'privilege' over notes taken during internal investigations before self-reporting (firms should realise that such notes may not be covered by 'privilege' and might have to be handed over to the regulators).
It also summmarises the recent judgement against Paul Flowers, the former Chairman of the Co-operative Bank. The Financial Conduct Authority (FCA) has prohibited Flowers from performing any function in resepct of any UK regulated activity. Mishcon comments that although Flowers' failings were quite ideosyncratic, (he was convicted of possessing illegal drugs and accused of certain other indiscretions) the FCA's ruling merits wide interest due to way in which the regulator has addressed the issues of competence and capability. The FCA determined that Flowers was not 'fit and proper' by virtue of his lack of integrity and reputation. Essentially, the FCA determined that the public attention related to Flowers' activities meant that he did not have an adequate reputation to perform regulated activities.
Enforcement Watch also reviews the FCA's Business Plan and what it presages for future enforcement actions. Anti-money laundering will be the key area, with culture and governance remaining a priority. Data Security is also expected to feature in future enforcement actions.
Mishcon's comments in its Enforcement Watch are short and tightly written, and contain links to background information and further reading. Enforcement Watch is led by Adam Epstein, a Mishcon partner: email@example.com
Mishcon de Reya is a Corporate Member of the Arab Bankers Association.