Compliance News | December 2023

Posted by

Emmeline de Chazal

on 14 Dec 2023

This month's compliance news includes Nasdaq's $4m settlement, the Royal Bank of Canada's AML breaches, the FCA's new anti-greenwashing rules, and more.

Compliance News December 2023

Our pick of key compliance stories this month

Finance sector to be hit hardest by AI disruption

A recent government report has identified the City of London and its highly qualified financial professionals as the primary targets of artificial intelligence (AI) disruption.

The finance and insurance sector, particularly in London, is deemed the most exposed to AI impacts, with employees achieving higher levels of education being more susceptible.

The concentration of professionals in the City makes it five times more vulnerable to AI than the north-east of England. Among white-collar roles, management consulting is the most affected, followed closely by financial managers, accountants, psychologists, economists, and legal professionals. In contrast, workers in crafts, creative arts, and design industries are expected to experience minimal disruption from AI advancements.

The report aims to quantify the imminent influence of AI on the UK job market by assessing the adaptability of various professions to AI applications such as translation, image, and speech recognition.

Free Behaving Professionally Training Presentation

Voyager's $1.65bn settlement gets approval

Cryptocurrency lender Voyager has settled with the U.S. Federal Trade Commission (FTC) after being accused of falsely claiming that customer accounts were insured by the Federal Deposit Insurance Corporation (FDIC). The company subsequently filed for bankruptcy in July 2022.

This misleading information was provided by Voyager's CEO, Stephen Ehrlich, during a critical financial period for the company. The settlement includes a $1.65 billion fine, temporarily suspended to facilitate customer reimbursement. The Commodity Futures Trading Commission (CFTC) is also pursuing Ehrlich on fraud and registration failure charges.

Voyager is prohibited from offering and marketing certain financial products and services, with the fine payable after addressing creditors in bankruptcy proceedings. While Voyager has agreed to the settlement, Ehrlich has not, and the case against him continues in court.

Key takeaways:

  • Ensure disclosure and transparency: Transparency in financial dealings, especially during critical financial periods, is crucial. Misleading information during such times can raise regulatory concerns and legal actions.
  • Implement consumer protection measures: Ensuring the security of customer funds and providing accurate information about the safety of their assets is paramount. The violation of consumer trust, as evidenced by the false advertising in this case, can lead to significant financial penalties.
  • Have a truthful representation of insurance coverage: Companies need to represent insurance coverage to customers accurately. False claims, especially regarding government-backed insurance like FDIC, can have severe legal consequences.

Free Fraud Prevention Good Practice Guide

Royal Bank of Canada fined $5.5m for AML breaches

The Royal Bank of Canada (RBC) has been fined C$7.5 million by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for failing to submit 16 suspicious transaction reports out of 130 case files.

The bank also neglected to file separate reports for different branch locations and lacked proper governance for implementing anti-money laundering (AML) procedures. FINTRAC imposed the penalty following a compliance examination in 2022, citing RBC's failure to report transactions with reasonable grounds to suspect money laundering.

RBC, which did not appeal the fine, expressed dissatisfaction, stating that the penalty was disproportionate to the administrative matter and emphasised no connection to money laundering or terrorist financing offences. The fine was levied under Canada's Crime (Money Laundering) and Terrorist Financing Act.

Key takeaways:

  • Ensure regulatory obligations are met: Financial institutions must diligently adhere to reporting obligations, especially regarding suspicious transactions.
  • Understand applicable legislation: It's important to have a thorough understanding of the relevant legislation governing their operations to ensure compliance and avoid penalties.
  • Implement branch-specific reporting: Firms operating through multiple branches should have mechanisms in place to submit separate suspicious transaction reports for different locations.

AML Checks Training Aid

Trafigura sets aside $127m for possible DOJ fine

Commodities trader Trafigura is allocating $127 million to potentially settle a U.S. Department of Justice (DOJ) investigation into "improper payments" made by the company in Brazil about ten years ago. The company is set to disclose this amount in its upcoming 2023 annual report.

The probe is linked to statements from a former Trafigura employee, Mariano Marcondes Ferraz, who made disclosures as part of a plea agreement in Brazil. The company has been investigated by regulatory authorities in the United States, Brazil and Switzerland.

Additionally, Trafigura is facing bribery charges in Switzerland related to alleged unlawful payments through a third party to a former employee of Angola's state oil company. The Swiss indictment also names Trafigura's former chief operating officer, Mike Wainwright. Trafigura asserts it will defend itself in court, and Wainwright denies the charges, intending to mount a defence.

Free Anti-Bribery Training Tips

Nasdaq to pay $4m sanctions violations settlement

Nasdaq Inc. has agreed to a $4 million settlement with the U.S. Department of Treasury for potential violations of sanctions against Iran by a former Nasdaq unit, Nasdaq OMX Armenia. The settlement pertains to services provided to Iran and Bank Mellat.

"The settlement amount reflects OFAC's determination that Nasdaq's conduct was non-egregious and voluntarily self-disclosed,"

- Office of Foreign Assets Control (OFAC)

Nasdaq acquired the Armenian Stock Exchange, later named Nasdaq OMX Armenia, in 2008 as part of its acquisition of Swedish financial company OMX AB.

Key takeaways:

  • Always conduct due diligence in acquisitions: when being in the position of an acquiring company, it is vital to conduct thorough due diligence on the entities you are buying, especially those with international operations.
  • Have systems in place to continuously monitor and report irregularities: Companies need to implement effective monitoring mechanisms to detect and report potential compliance violations promptly.
  • Document and communicate: Maintaining clear documentation of transactions and communications is crucial. Nasdaq's ability to present mitigating factors in its statement indicates the importance of having a well-documented trail of actions taken to address compliance concerns.
  • Be aware of and adhere to sanctions policies: Companies need to remain vigilant and ensure strict adherence to international sanctions regulations.

Free Sanctions Training Presentation

HHS settles its first phishing attack investigation

Louisiana-based medical group Lafourche Medical Group has settled with the U.S. Department of Health and Human Services (HHS) in response to its first-ever phishing attack case.

Following a March 2021 incident that exposed the protected health information (PHI) of approximately 35,000 individuals, Lafourche agreed to pay $480,000 to the Office for Civil Rights (OCR) and enact a corrective action plan.

The OCR investigation revealed Lafourche's failure to conduct a required risk analysis before the phishing attack, along with a lack of policies to review information system activity for cybersecurity regularly.

“Phishing is the most common way that hackers gain access to health care systems to steal sensitive data and health information,”

- Melanie Fontes Rainer, Director, OCR

In addition to the monetary settlement, Lafourche must enhance its security measures, establish policies for HIPAA compliance, and provide staff training on PHI access. The OCR will monitor Lafourche's compliance with the corrective action plan for two years.

Mitigating Cybersecurity Threats Webinar

FCA introduces rule package to curb greenwashing

The Financial Conduct Authority (FCA) has unveiled long-awaited rules aimed at combating greenwashing in investments and establishing clear labels for sustainable funds.

After seeking feedback on the proposal in October 2022, the FCA received nearly 250 responses and claims to have tested the new rules with 15,000 individuals. The measures include an anti-greenwashing rule for authorised firms, four investment labels, and guidelines for marketing funds based on sustainability characteristics.

Firms are cautioned to prepare for the new anti-greenwashing rules, and UK asset managers must decide whether to label products aiming for sustainable outcomes. The FCA will now have the authority to review and challenge new funds seeking authorisation, taking enforcement action in cases of "serious misconduct."

This initiative responds to the anticipated growth of ESG funds to $34 trillion (£26.9 trillion) by 2026. The FCA's research indicates that while 80% of consumers desire investments that "do good and deliver a return," 70% believe many self-proclaimed sustainable investments fall short.

“We need to keep up with the pace of change and offer products that consumers want and understand.”

- Sheldon Mills, executive director of consumers & competition, FCA

The policy statement underscores the FCA's commitment to addressing concerns about firms making exaggerated or misleading sustainability-related claims about their investment products.

Greenwashing Prevention Tips

CMA calls Morrisons & M&S out for anti-competition

Morrisons and Marks & Spencer are facing scrutiny from the Competition & Markets Authority (CMA) over anti-competitive land deals. Morrisons has been criticised for the "poorest compliance record" in violating rules that hinder competitors from opening nearby.

The supermarket had 55 land deals breaching regulations, with 14 already concluded and an agreement to address the remaining 41. M&S was found to have 10 breaches, with five concluded and plans to address the others. Since 2010, seven major UK grocers have been prohibited from imposing clauses in property deals limiting rivals.

The CMA emphasised the unlawfulness of such restrictive agreements, aiming to promote competition, choice, and lower living costs. Both Morrisons and M&S expressed cooperation with the investigation and commitment to rectify the breaches. The CMA is also examining pricing competition in the grocery sector, addressing branded suppliers for inflating prices during the cost of living crisis.

“At a time when the weekly shop is a source of financial pressure for many families, it’s crucial that competition between supermarkets is working well to help people get the best deals they can,”

- Adam Land, director of remedies business & financial analysis, CMA

Competition Law Training Presentation

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