FSA Slaps One Of Its Biggest Fines On UK Bank, Slams Anti-Money Laundering Failures

Tom Burroughes

26 March 2012

Coutts, the UK private bank, has been fined £8.75 million (around $13.8 million) by the Financial Services Authority, the sixth-largest fine ever handed out by the regulator, for failing to take reasonable care to establish and maintain effective anti-money laundering systems and controls relating to high-risk customers, including “politically exposed persons”.

The fine will be incorporated into the first-quarter 2012 results, Coutts told this publication.

The FSA said: “The failings at Coutts were serious, systemic and were allowed to persist for almost three years. They resulted in an unacceptable risk of Coutts handling the proceeds of crime.”

This is not the first time that Coutts has fallen afoul of the FSA. Last year, the FSA fined Coutts & Co £6.3 million for failings linked to the sale of an AIG fund.

Rory Tapner, chief executive of the wealth division of Royal Bank of Scotland, said today in a statement: “We are disappointed that Coutts & Co did not meet the FSA’s standards with regard to establishing and maintaining effective AML controls in relation to high-risk clients. Since the FSA first raised its concerns, we have implemented a number of improvements to prevent any recurrence of these failings. Regulatory reforms continue apace. We remain committed to ensuring that our systems and controls are robust and counter the risk of financial crime in all the markets in which we operate.”

Explaining the background, the FSA said that in October 2010, it visited Coutts as part of its review of how banks managed anti-money laundering risk situations.

“Following that visit, the FSA’s investigation identified that Coutts did not apply robust controls when starting relationships with high-risk customers and did not consistently apply appropriate monitoring of those high-risk relationships. In addition, the FSA determined that the AML team at Coutts failed to provide an appropriate level of scrutiny and challenge,” it said.

In its investigation, the FSA said that Coutts had failed to achieve the following objectives:

-- Gather sufficient information to establish the source of wealth and source of funds of its prospective PEP and other high-risk customers;

-- Identify and/or assess adverse intelligence about prospective and existing high-risk customers properly and take appropriate steps in relation to such intelligence;

-- Keep the information held on its existing PEP and other high-risk customers up-to-date; and

-- Scrutinise transactions made through PEP and other high-risk customer accounts appropriately.

“Coutts’ failings were significant, widespread and unacceptable. Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures,” said Tracey McDermott, acting director of enforcement and financial crime at the FSA.

“Coutts was expanding its customer base, which increased the number of high risk customer relationships. The regulatory environment in relation to financial crime had also changed. It is therefore particularly disappointing that Coutts failed to take appropriate steps to manage its AML risks. This penalty should serve as a warning to other firms that, not only should they ensure they constantly review and adapt their controls to changing financial crime risks within their businesses, but that they must also make changes to reflect changing regulatory or other legal standards,” McDermott said.

Coutts agreed to settle at an early stage and therefore qualifies for a 30 per cent discount. Were it not for this discount, the FSA would have imposed a financial penalty of £12.5 million.

Politically exposed persons, the FSA explained, are “individuals whose prominent position in public life may make them vulnerable to corruption”.