The Financial Conduct Authority (FCA) has imposed a £178,000 fine (reduced from £236,740 to avoid serious financial hardship) on Sapien Capital Limited (SCL), a UK based corporate finance advisory and brokerage firm, for financial crime control and anti-money laundering (AML) failings. This is the first fine levied by the FCA in relation to cum-ex trading.
This fine comes amid a wave of recent AML enforcement action, including the FCA’s first criminal proceedings under the Money Laundering Regulations and much larger fines being imposed on European banks for AML failings, as well as talk of creating a centralised database of AML weaknesses identified in firms in the EU.
This fine is further proof, if any were needed, of the importance of maintaining strong AML provisions and that regulated firms should at all times monitor and maintain their compliance systems and controls.
In particular, it was found that SCL breached:
- Principle 2 – because it did not exercise due skill, care and diligence in applying its AML policies and procedures, and in failing properly to assess, monitor and mitigate the risk of financial crime in relation to certain of its clients; and
- Principle 3 – because it had inadequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering.
Every firm that is subject to the Money Laundering Regulations can learn from this final notice. There are lessons here that apply to broader compliance programmes and concepts, not just AML. Practical points to note from the final notice, where SCL was specifically found to have failings, include:
- a willingness to cut corners in order to obtain business by bypassing its know-your-client (KYC) checks and its own compliance manual. This is a classic compliance risk that should be resisted wherever possible in order to maintain the integrity of the compliance environment. It can often require careful and regular training, as well as monitoring, to minimise this risk. A good compliance culture requires a firm to invest both time and resources;
- a failure to properly review and analyse KYC material that was provided, or to ask appropriate follow up questions in relation to red flags in such material. This is a good example of how systems and controls need to be effective in practice, not just on paper;
- after red flags appeared, SCL failed to conduct ongoing monitoring of risky clients. Again, proactive compliance, not just adhering to a minimum standard on paper, is essential to meeting a firm’s compliance obligations; and
- failures or delays to implement additional or remedial steps after the FCA had carried out a visit to the firm and alerted it to potential issues. SCL also failed to react to red flags raised by its own employees in relation to certain payments. The lesson here should be clear – if red flags are raised or serious issues brought to your attention by your staff or in particular by the FCA, then it is important to respond appropriately.
The FCA has expressed how important AML enforcement is to its strategy. This fine is a good example of this and demonstrates that firms of any size d financial standing may be subject to investigation and enforcement for AML failings.