By Simon Miller
RBS-owned Coutts has been fined £8.75m for anti-money laundering system failures and controls relating to high risk customers, including politically exposed persons (PEPs) by the Financial Services Authority (FSA).
The FSA rules that 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".
In October 2010, the FSA visited Coutts as part of its thematic review into banks’ management of high 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.
The FSA identified deficiencies in nearly three quarters of the PEP and high risk customer files reviewed. Specifically, in one or more of each inadequate file Coutts failed to:
i. gather sufficient information to establish the source of wealth and source of funds of its prospective PEP and other high risk customers;
ii. identify and/or assess adverse intelligence about prospective and existing high risk customers properly and take appropriate steps in relation to such intelligence;
iii. keep the information held on its existing PEP and other high risk customers up-to-date; and
iv. scrutinise transactions made through PEP and other high risk customer accounts appropriately.
Tracey McDermott, acting director of enforcement and financial crime, said:
“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.”
Coutts agreed to settle at an early stage, qualifying for a 30% discount. otherwise it would have faced a £12.5m fine.