A look at the failures and possible solutions for Financial Service firms
In the highly regulated world of financial services, compliance is paramount. Non-compliance not only undermines the integrity of financial markets but also carries substantial penalties. The Financial Conduct Authority (FCA) has demonstrated a rigorous stance on ensuring firms adhere to regulations, as evidenced by the following case studies. Each case underscores critical lapses in compliance that led to significant fines and sanctions. By examining these instances, we can identify common pitfalls and explore strategies for preventing such breaches in the future.
The following three case studies – Santander UK Plc, James William Edward Lewis, and Floris Jakobus Huisamen highlight a severe lack of compliance resulting in penalties enforced by the FCA either the firm or and individual. These cases illustrate the necessity of robust anti-money laundering (AML) controls, accurate SM&CR reporting and honest financial promotions.
Continue reading as we delve into the themes and discuss potential preventative methods leveraging compliance monitoring tools for firms and individuals conducting Financial Services Activities.
Santander UK Plc:
Date: 8 December 2022
Penalty: £107,793,300
Reason: Santander UK failed in its AML controls. The FCA identified that Santander UK had significant issues with its AML framework. This included failing to properly establish the identity of the bank’s customers and the nature of their businesses, as well as failing to monitor transactions effectively.
Regulatory Reference: The penalty was imposed under section 206 of the Financial Services and Markets Act 2000 (FSMA).
Key Issues: The FCA highlighted the importance of banks having robust AML frameworks to prevent money laundering, which undermines the integrity of the UK financial system. The failures included inadequate customer due diligence and transaction monitoring.
Source: Final Notice to Santander UK Plc
The Solution: The consistent use of compliance monitoring systems provides the opportunity to address all the issues identified in the case study above. Establishing effective AML frameworks can be done through consistent monitoring, training and scheduled attestations. This is a function whereby a firm can set an ongoing task for relevant individuals or groups to record data as well as attest they are following up to date training and procedures. Additionally, a prompt function allows for customers to be efficiently contacted for due diligence with preset questionnaires that can be answered and automatically recorded.
In this case, the bank needed more than just a system in place. A system to monitor effectiveness of controls as well as ensuring ongoing training of staff on AML policies, internal procedures, and the bank’s systems and controls would have created the capacity to meet their ongoing due diligence requirements.
Floris Jakobus Huisamen
Date: 13 February 2024
Penalty: Financial penalty of £31,800. Order prohibiting Mr Huisamen from performing any function in relation to any regulated activities carried on by any authorised or exempt person or exempt professional firm.
Reason: Mr Huisamen was appointed as a Director of London Capital & Finance plc (LCF) on 1 July 2016 with the remit for Risk and Compliance. On 11 October 2023 the authority gave LCF a final notice for failing to ensure its financial promotions were fair, clear and not misleading over the period 7 June 2016 to 10 December 2018. As a director Mr Huisamen played a key role in the sign off process for confirming that LCF financial promotions complied with the financial promotion rules, including the fair, clear and not misleading rule.
Regulatory Reference: Penalties imposed under section 66 & 56 of the FSMA respectively.
Key Issues: During the relevant period, LCF failed to ensure that its financial promotions were fair, clear and not misleading, thereby breaching COBS 4.2.1(1)R.
Source: Final Notice to Floris Jakobus Huisamen
The Solution: A robust compliance management platform with a specific Financial Promotions checklist can offer the capacity to ensure compliant financial promotions. In the case study above, Mr Huisamen was held responsible as a result of being the key sign-off on non-compliant financial promotions. This could have been avoided with a system in place guiding the financial promotion through a checklist of compliance requirements, and ensuring approvals captured are ready for audit. In summary, a system with a robust checklist will help identify potential breaches in a financial promotion before approval.
ADM Investor Services International Limited
Date: 29 September 2023
Penalty: £6,470,600
Reason: Failure to improve upon identified weaknesses in AML systems and controls in relation to the CFD business, client “on-boarding” and compliance monitoring.
Regulatory Reference: Penalty imposed under section 206 of the Financial Services and Markets Act 2000
Key Issues: Following the 2014 Assessment, the FCA notified ADMISI that it identified weaknesses which required improvement in its risk management framework, compliance monitoring, and client risk assessment. This had not seen significant improvement by the next review in 2016.
Source: Final Notice to ADMISI
The Solution: Conducting a detailed ongoing risk assessment is an important element within compliance monitoring plans. Compliance monitoring systems should help track effectiveness of controls and provide senior management updates with necessary information to address risks in a timely manner. Continuously tracking and monitoring residual risk all contribute positively to demonstrating effective risk management.
Similar to the bank case study, more than a system in place is needed to be compliant with AML requirements. In this instance, seeking external support from a governance, risk, and compliance firm with a robust risk management tool could have aided the firm to identify risks. Additionally, an internal audit of their framework and support to train staff on AML policies could have helped the firm implement an effective plan to manage their AML risk framework.
These cases highlight the FCA’s focus on ensuring that firms implement and maintain robust systems and controls to prevent financial crime and market abuse. The FCA’s stringent regulatory oversight aims to protect the integrity of the financial system and uphold high standards across the industry. When firms fail to meet these standards, the penalties can be substantial, as demonstrated by the significant fines and sanctions in these case studies.
ComplyPortal understands the critical importance of rigorous and continuous compliance monitoring and reporting. We recognise that adhering to regulatory requirements is not just about avoiding penalties but also about maintaining trust and credibility in the market. Our tried and tested solution is designed to help firms meet the complex requirements set by regulators. By providing comprehensive tools for compliance monitoring, reporting and audit trails,
ComplyPortal enables firms to demonstrate their adherence to regulatory standards effectively. Our platform ensures that firms can stay ahead of regulatory changes, mitigate risks, and maintain a strong compliance posture in an ever-evolving financial landscape.
To find out how ComplyPortal can solidify your compliance Book a demo.
To out more about how the ComplyPortal platform can help firms adapt to new regulatory expectations at: https://complyportal.uk/modules/
About ComplyPortal:
First developed in 2011 by compliance professionals for compliance officers, ComplyPortal offers workflow, automation, and several modules to help firms with control and regulatory compliance monitoring.
ComplyPortal simplifies financial services regulatory compliance management on an easy-to-use cloud-based comprehensive compliance platform. It enables compliance officers, risk officers and senior management to keep track of their firm’s regulatory responsibilities and workflows. Our platform includes the following modules, among others:
- Monitoring: a year-round schedule pre-populated with monitoring questionnaires to ease compliance processes.
- Approvals: authorise request and keep track of workflows
- Registers: lists controlled by the Compliance officer, but easy for staff to view.
- Risk: map and control risk areas to effectively identify and manage risk for your firm.
- Training: access our LMS platform for all Compliance and Governance Training
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