FCA imposes penalties on Sonali Bank (UK) Limited and its former money laundering reporting officer for serious anti-money laundering systems failings

Financial services firms are at risk from those seeking to launder money. As a result, they are required to maintain robust and risk-focused anti-money laundering (AML) systems. The FCA expects regulated firms to promote a culture which supports these controls and which impresses on all members of staff the importance of complying with them.

Mark Steward, Director of Enforcement and Market Oversight at the FCA, said:

“Fighting money laundering is an issue of extreme international importance and ensuring that AML controls are effective and viewed as important throughout the business are fundamental obligations of all regulated firms.”

“There is an abundance of guidance for firms on how to comply with AML and financial crime requirements and no excuse for failing to follow it. The FCA will not hesitate to take action against firms and senior individuals who fall short of our standards. As in this case, such action may include using our powers to restrict a firm’s continuing business.” 

Despite having previously received clear warnings about serious weaknesses in its AML controls, SBUK failed to maintain adequate AML systems between 20 August 2010 and 21 July 2014.

The FCA found serious and systemic weaknesses affected almost all levels of its AML control and governance structure, including its senior management team, its money laundering reporting function, the oversight of its branches and its AML policies and procedures. This meant that the firm failed to comply with its operational obligations in respect of customer due diligence, the identification and treatment of politically exposed persons, transaction and customer monitoring and making suspicious activity reports.

As a result, SBUK breached Principle 3 (taking reasonable steps to organise its affairs responsibly and effectively, with adequate risk management systems) of the FCA’s Principles for Businesses.

While under FCA investigation, SBUK breached Principle 11 (dealing with regulators in an open and cooperative way) by failing to notify the FCA of an allegation of significant fraud.

Mr Smith was SBUK’s MLRO and compliance officer from February 2011. He was responsible for overseeing the day-to-day operation of, and ensuring the effectiveness of, SBUK’s AML systems and controls. Despite repeated warnings from SBUK’s internal auditors, Mr Smith:

• failed to put in place appropriate AML monitoring arrangements;
• failed to identify serious weaknesses in operational controls and a lack of appropriate knowledge among staff members;
• reassured SBUK’s board and senior management that controls were working well when they were not;
• failed to report appropriately SBUK’s internal auditors’ concerns and the results of internal testing; and
• failed to impress upon senior management the need for more resources in the MLRO function and failed to take adequate steps to recruit more staff in a timely fashion.

In taking this action, the FCA took into account the fact that Mr Smith did not have sufficient senior management support and was overworked. At the same time, the FCA regards his failings as serious in their own right, taking into account that Mr Smith failed to take any of the potential steps open to an MLRO in such a position. These include the appropriate escalation of such concerns internally to senior management, relevant board committees or internal auditors, appropriate reporting in annual MLRO reports or reporting concerns to the FCA. Any such report could be made on a confidential basis.

The FCA found that Mr Smith failed to exercise due skill, care and diligence in managing the business of the firm for which he was responsible, and that he was knowingly concerned in aspects of SBUK’s breach of Principle 3. The FCA considers that Mr Smith demonstrated a serious lack of competence and capability and as a result, has prohibited him from performing the money laundering reporting or compliance oversight functions at regulated firms.

Both SBUK and Mr Smith agreed to settle at an early stage and therefore qualified for a 30% (stage 1) discount.

Notes to editors

1. The final notice for SBUK[1] (PDF)

2. The final notice for Steven Smith[2] (PDF)

3. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
5. Find out more information about the FCA.