The Financial Conduct Authority (FCA) aims are to protect consumers, promote fair competition, and enhance market integrity. However, as you're about to witness, getting on their wrong side can cost any UK company dearly.
In 2020, nearly £200 million in fines were handed out to UK companies. These penalties should act as a clear warning to any companies who aren't taking financial compliance as seriously as they should be.
1. Goldman Sachs International (fined £97m)
PRIN 2 and PRIN 3 breaches – Risk management failures
Goldman Sachs International (GSI) was slapped with a £97m fine by the FCA and the Prudential Regulation Authority (PRA). The amount was part of a US$2.9 billion globally coordinated settlement reached between GSI and various other authorities, including the US Department of Justice and the Monetary Authority of Singapore.
This relates to risk management failures connected to 1Malaysia Development Berhad (1MDB) and GSI’s role in three fundraising transactions for the Malaysian state-owned development company.
In a statement, the FCA and PRA said GSI had "failed to assess and manage risk to the standard that was required given the high-risk profile of the 1MDB transactions, and failed to assess risk factors on a sufficiently holistic basis". GSI had also "failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with 1MBD in 2015".
2. Lloyds Bank, BoS & The Mortgage Business (fined £64m)
PRIN 3 & 6 breaches - Poor handing of mortgage customers
One of the largest fines handed out by the FCA in 2020 was split between Lloyds Bank plc, Bank of Scotland plc and The Mortgage Business plc. The penalties totalled £64,046,800 and were handed out due to failures concerning the poor handling of mortgage customers in arrears or payment difficulties. Apart from the FCA's fine, the banks involved will additionally have to pay around £300 million in redress.
What happened is that over a period of almost five years, the banks involved made use of inflexible procedures for gathering information from customers struggling to pay their mortgages. As a result, call handlers could not adequately assess customers' affordability and circumstances, meaning that many customers were consequently treated unfairly.
These issues were further aggravated when, as part of a simplification programme, the banks lost many employees with experience in mortgage collections and recoveries. From that point onwards, practically all mortgage arrears call handlers were newly appointed.
According to Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, "Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations. By not sufficiently understanding their customer circumstances, the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears over several years. In some cases, customers were treated unfairly, including vulnerable customers."
3. Commerzbank (fined £37.8m)
PRIN 3 breaches - AML failings
Another mammoth fine handed out by the FCA in 2020 was a £37,805,400 penalty issued to Commerzbank for failing to put suitable anti-money laundering controls and procedures in place over a period of almost five years.
An FCA investigation discovered failings across many areas, including Commerzbank London's failure to address long-standing weaknesses in automatic money laundering detection systems, as well as their habitual inability to conduct periodic client due diligence in a timely manner.
Commerzbank London was fully aware of these failures as the FCA had already raised concerns about them in 2012, 2015 and 2017. However, despite these clear warnings, the failures continued, and no reasonable or effective measures were taken to rectify them. These weaknesses also persisted during a period when the FCA was actively guiding companies on ways to reduce their financial crime risk, in addition to taking enforcement action against a number of firms concerning weak AML controls.
Commenting on the case, Mark Steward said that "Commerzbank London’s failings over several years created a significant risk that financial and other crime might be undetected. Firms should recognise that AML controls are vitally important to the integrity of the UK financial system."
4. Barclays (fined £26m)
PRIN 6, PRIN 3, and CONC rules breaches - unfair treatment of customers in the Retail Banking sector
Barclays was hit with a £26m fine for the poor treatment of more than 1.5 million struggling borrowers, the largest fine ever issued by the FCA for a breach of consumer credit rules.
The bank mistreated business and personal customers who were in financial difficulties and fell behind on credit card and loan payments between 2014 and 2018. They failed to properly contact customers who fell into arrears and had not had appropriate conversations about their individual circumstances.
This meant that the bank ended up offering struggling borrowers unaffordable or unsustainable payment plans that could put them under pressure to prioritise their Barclays debt over other key financial responsibilities such as their mortgage, council tax, child support or utility bills.
The FCA stated they would ‘take action against unfair treatment, or where firm systems expose customers to the risk of unfairness.’
5. Charles Schwab (fined £8.96m)
PRIN 10 and 11, CASS & Section 20 FSMA breaches – Safeguarding and Compliance Issues
The FCA fined Charles Schwab UK Ltd (CSUK) £8.96 million for failing to adequately protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA.
Mark Steward stated that ‘Charles Schwab UK failed to get the correct permissions from the FCA; then failed to be open with us and, finally, failed to put in place the necessary safeguards to ensure, if required, there could be an orderly return of client assets.’
Charles Schwab did not have the right records to identify its customers’ client assets as they were kept in the US company’s general pool. They also made a false statement to the FCA by saying adequate controls were in place to protect client assets.
6. Moneybarn (fined £2.8m)
PRIN 6 & 7 and CONC rules breaches - Unfair treatment of customers
Moneybarn Limited, a leading UK car finance company, has been fined almost £3 million by the FCA for the unfair treatment of customers who could not keep up with their loan repayments while experiencing financial trouble.
Moneybarn is one of Provident Financial plc's subsidiaries and specialises in providing motor finance for used vehicles predominantly to customers whom mainstream lenders have rejected. As a result, Moneybarn's customer base is largely made up of vulnerable customers with a poor or non-existent credit history or past credit issues due to ill health, unemployment or other adverse life events.
The FCA investigation found that "Moneybarn did not give its customers, many of whom were vulnerable, the chance to clear their arrears over a realistic and sustainable period.
"It also did not communicate clearly to customers, in financial difficulty, their options for exiting their loans and the associated financial implications, resulting in many incurring higher termination costs. These were serious breaches."
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