1. Standard Chartered Bank (fined £102m)
Breaches of the Money Laundering Regulations 2007
In April 2019, we reported on the second-largest fine ever issued by the FCA. Standard Chartered Bank received a £102m fine for breaching money laundering regulations.
The FCA found serious and sustained shortcomings in Standard Chartered’s AML controls relating to customer due diligence and ongoing monitoring. Standard Chartered failed to establish and maintain risk-sensitive policies and procedures and failed to ensure its United Arab Emirates (UAE) branches applied UK equivalent AML and counter-terrorist financing controls.
The failings identified exposed Standard Chartered to the risk of breaching sanctions and increased the risk of Standard Chartered receiving and/or laundering the proceeds of crime. Examples of Standard Chartered AML failings, which are detailed in the FCA Decision Notice.
The FCA also found significant shortcomings in Standard Chartered’s internal assessments of the adequacy of its AML controls, its approach towards identifying and mitigating material money laundering risks and its escalation of money laundering risks.
2. Bank of Scotland plc (fined £45.5m)
Breaches of PRIN 11 & SUP - failing to be open and cooperative
In June 2019, the FCA fined Bank of Scotland (BOS) £45.5m for failing to disclose information about its suspicion of fraud at the Reading-based Impaired Assets team of Halifax BoS.
BOS identified suspicious conduct in the Impaired Assets team in early 2007. The Director of the Impaired Asset Team, Lynden Scourfield, had been sanctioning limits and additional lending facilities beyond the scope of his authority undetected for at least three years. BOS knew by 3 May 2007 that the impact of these breaches would result in substantial losses to BOS.
Over the next two years, BOS failed properly to appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred. There was insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom. There was also no evidence anyone realised or thought about the consequences of not informing the authorities.
It was not until July 2009 that BOS provided the FSA with full disclosure concerning its suspicions. BOS did not report its suspicions to any other law enforcement agency. The FSA reported the matter to the National Crime Agency (then the Serious Organised Crime Agency) on 26 June 2009.
3. Goldman Sachs International (fined £34.3m)
Breaches of SUP 15, 17 & PRIN 3 related to transaction reporting failures
Goldman Sachs failed to provide complete, accurate and timely information concerning approximately 213.6m reportable transactions. It also erroneously reported 6.6m transactions to the FCA, which were not, in fact, reportable. Altogether, over a period of 9 and a half years, GSI made 220.2m errors in its transaction reporting, breaching FCA rules. As a result, they were fined £34.3m in March 2019.
The FCA also found that GSI failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting. These failings related to aspects of GSI’s change management processes, its maintenance of the counterparty reference data used in its reporting and how it tested whether all the transactions reported to the FCA were accurate and complete.
4. Standard Life Assurance Limited (fined £30.8m)
Breaches of PRIN 3, 6 & COBS relating to the unfair treatment of customers
In July 2019, Standard Life received a £30.8m fine for failures related to non-advised sales of annuities. Standard Life had failed to put in place adequate controls to monitor the quality of the calls between its call handlers and non-advised customers.
Standard Life's call handlers received significant bonuses and rewards if they met or exceeded sales targets. During the period of misconduct, the FCA identified that nearly 22% of call handlers received more than 100% of their basic salary in bonus payments. This created the risk that the call handlers would place their own financial interests ahead of fair customer outcomes.
On 31 January 2017, Standard Life voluntarily agreed to conduct a past business review to identify and pay redress to those customers who were likely to have or did suffer loss because of its failures.
As of 31 May 2019, Standard Life had paid approximately £25.3 million to 15,302 customers in response to this review. The past business review was to be completed by the end of 2019. Based on the redress payments made to customers in Standard Life’s redress exercise to date, the estimated total redress payable will amount to approximately £61.2 million.
5. The Carphone Warehouse (fined £29.1m)
Breaches of PRIN 3, 6 & 9 related to misselling in the general insurance & protection sector
In March 2019, Carphone Warehouse was fined £29 million for misselling its Geek Squad insurance service.
Over a seven-year period, the firm made £444.7 million from regulated sales of its Geek Squad policies. However, sales staff were not trained to assess customer needs or whether the policy was suitable, often recommending them when customers already had cover. 35% of policies were cancelled in the first three months.
While high cancellation rates are a red flag indicating potential mis-selling, management failed to act or properly investigate complaints. The investigation took place after whistleblowers raised the alarm. An FCA spokesman commented that "without whistleblowers coming forward, these practices may never have come to light".
6. UBS AG (fined £27.6m)
Breaches of SUP 17, SUP 15 & PRIN 3 related to transaction reporting failures
In March 2019, UBS AG (UBS) was fined £27.6m by the FCA for failings relating to 135.8 million transaction reports between November 2007 and May 2017.
UBS failed to ensure it provided complete and accurate information concerning approximately 86.67m reportable transactions. It also erroneously reported 49.1m transactions to the FCA, which were not reportable. Altogether, over a period of nearly a decade, UBS made 135.8m errors in its transaction reporting, breaching FCA rules.
The FCA found that UBS failed to take reasonable care to organise and control its affairs responsibly and effectively in respect of its transaction reporting. The failings related to UBS’s change management processes, its maintenance of the reference data used in its reporting and how it tested whether all the transactions it reported to the FCA were accurate and complete.
Find out more on the FCA final notice to UBS.
7. Prudential Assurance Company (fined £23.9m)
Breaches of PRIN 3 & PRIN 6 relating to misselling and the unfair treatment of customers
At the end of September 2019, the FCA fined Prudential £23,875,000 for failures related to non-advised sales of annuities.
Between July 2008 and September 2017, Prudential’s non-advised annuity business focused on selling annuities directly to existing Prudential pension holders. The FCA found that Prudential’s business model for annuities included using telephone calls to maximise sales to existing pension customers.
However, Prudential failed to ensure that the documentation used by its call handlers was appropriate, and it failed to monitor the calls with customers adequately. Firms are required to explain to customers that they may get a better rate if they shop around on the open market, and Prudential failed to ensure that customers were consistently informed of this.
Before 1 January 2013, Prudential also used large, sales-linked incentive schemes for call handlers and managers, increasing the risk of inappropriate customer outcomes.
The FCA concluded that these weaknesses in Prudential’s systems and controls, combined with the complex nature of annuities, and the potential vulnerability of customers, led to some customers being treated unfairly and created a significant risk of consumer detriment.
For further details, read the FCA final notice issued to Prudential.
8. Tullet Prebon Europe (fined £15.4m)
Breaches of PRIN 2, 3 & 11 related to wholesale conduct & failing to be open & co-operative
In October 2019, we reported on the £15.4 million fine for broker Tullett Prebon for failing to have effective controls around broker conduct.
Tullett Prebon is an electronic and voice inter-dealer broker, acting for institutional clients transacting in the wholesale financial markets, typically investment banks. The Rates Division of the broker carried out ‘name passing’ broking, employing many brokers and generating significant revenues for the firm. Following an FCA investigation, the FCA found that, between 2008 and 2010, the firm’s Rates Division had ineffective controls around broker conduct.
Lavish entertainment and a lack of effective controls allowed improper trading to occur, including ‘wash’ trades that generated unwarranted and unusually high amounts of brokerage for the firm.
The firm’s senior management mistakenly believed sufficient systems and controls were in place, when in fact, systems and controls were not used or directed effectively.
The FCA confirmed that Tullett Prebon also breached Principle 11 of the FCA’s Principles for Businesses by failing to be open and cooperative with the regulator. In August 2011, the FCA asked Tullett Prebon for broker audiotapes. Although Tullett Prebon had most of the audio that the FCA required, they failed to produce the audio to the FCA until 2014.
For further details, read the FCA final notice issued to Tullett Prebon.
9. Henderson Investment Funds (fined £1.9m)
Breaches of PRIN 3 & PRIN 6 related to the unfair treatment of customers
November 2019 saw the FCA fine Henderson Investment Funds Limited (HIFL) £1.9m for failing to treat more than 4,500 retail investors fairly.
In November 2011, HIFL’s appointed investment manager, Henderson Global Investors Limited (HGIL), decided to reduce the level of active management of its Japan and North American Funds. The FCA has found that the subsequent treatment of retail investors in these funds was substantially different from its treatment of the institutional investors in the same funds.
HIFL charged investors £1,784,465.32 more than if they had invested in a passive fund. The situation revealed serious weaknesses in HIFL’s systems and controls in relation to the management, oversight and governance of an area of its business which included the Japan and North American Funds. These weaknesses resulted in the issue not being identified and resolved for a considerable amount of time.
HIFL has now disclosed the matter to all affected customers and compensated them for the additional costs they incurred.
10. R Raphael & Sons plc (fined £775k)
Breaches of PRIN 2, PRIN 3, SYSC 8 relating to culture/governance in the retail bank sector
Raphael's Payment Services Division (PSD) operates prepaid card and charge card programmes in the UK and Europe. The division relies on outsourced service providers to perform certain functions, including the authorisation and processing of card transactions.
The regulators found that Raphael's failed to have adequate processes to understand and assess its outsourced service providers' business continuity and disaster recovery arrangements, particularly how they would support the continued operation of its card programmes during a disruptive event. The absence of such processes posed a risk to Raphaels’ operational resilience and exposed its customers to a serious risk of harm.
On 24 December 2015, a technology incident occurred at an outsourced card processor, causing the complete failure of the authorisation and processing services it provided to Raphaels. The incident lasted over eight hours, and during this time, 3,367 customers were unable to use their prepaid cards and charge cards. In total, the card processor could not authorise 5,356 customer card transactions attempted at point of sale terminals, ATMs and online.
Raphaels received separate fines of £775,100 from the FCA and £1,112,152 from the PRA in respect of its rule breaches.
Notable FCA fines for Individuals in 2019
While some of the fines sound excessive, after reading the details, you’re bound to find them more reasonable given the consequences of some of the breaches.
A. Stewart Owen Ford (fined £76m)
Breaches of APER 1, APER 4 and FIT related to miss-selling
In January 2019, Mr Ford received the highest individual fine ever issued by the FCA. For failing to act with integrity (in breach of Statement of Principle 1) and failing to deal with the Authority in an open and cooperative way (in breach of Statement of Principle 4) between 26 July 2005 and 8 June 2009.
The fine relates to his tenure at Key Data Investment Services, where he held the controlled functions of CF1 (director), CF4 (chief Executive) and CF8 (Apportion & Oversight).
In 2005, Keydata began marketing products based on bonds issued by a Luxembourg-based company called SLS Capital SA (SLS), underpinned by US life settlement policies. However, it did so without conducting adequate due diligence and using misleading brochures.
B. Mark John Owen (fined £3.2m)
Breaches of APER 1, APER 4 and FIT related to a lack of fitness/propriety and failing to act on information appropriately.
Mr Owen was fined £3.2m relating to his time at Keydata.
The Tribunal found that Mr Owen received £2,540,787 in undisclosed commissions from Stewart Owen Ford. Both parties claimed the payments were unrelated loans. However, a Tribunal saw this as a “fabrication” which “both for Mr Ford and Mr Owen, displays a lack of integrity”.
The Tribunal further found that Mr Ford and Mr Owen had failed to disclose that the products were failing. The failure of Key Data ultimately led to consumer losses of £450m.
Have lessons been learned?
The total amount in 2019 fines is significantly higher than FCA Fines in 2018 - by roughly sixfold! Perhaps, as the FCA Fines in 2020 were half the level of 2019 (around £200 million). And the FCA Fines in 2021 and in 2022 are even lower. However, such huge penalties for a few companies should clearly warn any companies who aren't taking financial compliance as seriously as they might.
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