The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Danske Bank
The US Treasury Department’s sanctions watchdog has closed its probe into a money-laundering scandal at Danske Bank's Tallinn branch in Estonia, the Copenhagen-based bank said yesterday. 

“Danske Bank A/S has been informed that the US Department of the Treasury’s Office of Foreign Assets Control has decided to close its investigation of Danske Bank in relation to the Estonia case with no action,” the lender said in a statement. 

However, the closure of this particular investigation is not the end of the matter for Danske. The bank continues to be under criminal and regulatory investigations by authorities in Denmark, France and the US, including by the Danish State Prosecutor for Serious Economic and International Crime (SØIK), the US Department of Justice and the US Securities and Exchange Commission.

The bank has been investigated after admitting that it failed to appropriately check about $230 billion in transfers by non-Estonians through its branch in Tallinn, Estonia, primarily by Russians, between 2007 and 2015. The affair has raised concerns about the scale of money laundering in Europe from a number of quarters.

Financial Conduct Authority (UK)
The Financial Conduct Authority, the UK regulator, has fined Charles Schwab UK Ltd – an affiliate of US-listed Charles Schwab - £8.96 million ($11.9 million) for failing to adequately protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA.

Customers affected by the breaches were all retail customers, who require the greatest level of protection, the FCA said in a statement yesterday. 

“Charles Schwab UK failed to get the correct permissions from the FCA; then failed to be open with us and, finally, failed to put in place the necessary safeguards to ensure, if required, there could be an orderly return of client assets,” Mark Steward, executive director of enforcement and market oversight at the FCA, said. “As we saw with Lehman Brothers and subsequent cases, a lack of client asset protections can easily lead to increased costs to consumers and funds being trapped for long periods of time. 

“Firms, including newly-established businesses or firms coming into the UK from overseas, are responsible for ensuring they comply with our rules, and are expected to make sure they have the right protections in place,” Steward added. 

The breaches occurred between August 2017 and April 2019, after CSUK changed its business model. Client money was swept across from CSUK to its affiliate Charles Schwab & Co in the US, the FCA said. The client assets, which were subject to UK rules, were held in CS&C’s general pool, which contained both firm and client money and which was held for both UK and non-UK clients, it said. 

The watchdog said CSUK failed to arrange adequate protection for its clients’ assets under UK rules. It did not have the right records and accounts to identify its customers’ client assets; did not undertake internal or external reconciliations for its customers’ client assets; did not have adequate organisational arrangements to safeguard client assets, and did not maintain a resolution pack, which would help to ensure a timely return of client assets in an insolvency

CSUK carried out a regulated activity without permission. The firm did not at all times have permission to safeguard and administer custody assets, and failed to notify the FCA of the breach when applying for the correct permission, the regulator continued.  

“CSUK made a false statement to the FCA. Without making adequate enquiries to check whether this was correct, the firm inaccurately informed the FCA that its auditors had confirmed that it had adequate systems and controls in place to protect client assets,” it said. 

The firm took remedial action at various points after discovering the breaches. There was no actual loss of client assets and CSUK stopped holding client assets from 1 January 2020. CSUK agreed to settle the case and qualified for a 30 per cent discount. The financial penalty would otherwise have been more than £12.8 million, the FCA added.