Abbey National plc was fined £2mn for breaches of the FSA's Money Laundering Rules, while Abbey National Asset Managers Limited (ANAM) was fined £320,000 for systems and control breaches. Both cases reflected wider control failings, including inadequate monitoring of key regulatory risks, across the Abbey National group over a prolonged period.
Abbey National plc
Andrew Procter, FSA Director of Enforcement, said:
"The FSA has repeatedly made it clear to the regulated community that it expects all financial firms as part of their compliance regime to establish and maintain strong and effective anti-money laundering procedures.
"The failure by Abbey National to monitor compliance with FSA Money Laundering Rules demonstrated a marked lack of regard for its regulatory obligations. Abbey National failed to ensure that suspicious activity reports were promptly considered and reported to the National Criminal Intelligence Service and to identify customers adequately. Both these controls are fundamental to the UK's Anti-Money Laundering regime's effectiveness. Their failings also reflected the fact that the overall control environment, particularly compliance monitoring, has been weak across the group over a prolonged period.
"The size of the fine demonstrates that failure by firms to put in place these fundamental systems and controls will be dealt with severely by the FSA and it reflects the importance the FSA attaches to its statutory objective of reducing the chance of regulated firms being used for purposes connected to financial crime.
"I was, however, pleased to see the personal commitment of Abbey’s CEO to resolving these cases promptly."
The FSA’s investigation revealed weaknesses in Abbey National’s anti-money laundering controls across its retail banking division. The investigation found that from December 2001 until April 2003 Abbey National failed to adequately monitor anti-money laundering (AML) compliance following the introduction of the FSA's Money Laundering Rules. The failings included reliance on a system of self-certification of AML compliance by branches, the lack of AML compliance monitoring by a central function and the failure to provide key management information to the Money Laundering Reporting Officer (MLRO) function regarding this process. These failings contributed to high rates of non-compliance with 'know your customer' (KYC) requirements which persisted until April 2003.
The FSA's enquiries also revealed that, in respect of customer transactions carried out or attempted during 2002, Abbey National's MLRO function failed to ensure that internal suspicious activity reports (SARs) were promptly considered and reported to NCIS. This breach extended from February 2002 to October 2003.
The control failings and breaches occurred despite increased regulatory emphasis on the importance of effective anti-money laundering controls since the introduction of the FSA’s Money Laundering Rules.
In mitigation, Abbey National has devoted considerable resources in taking prompt and effective remedial action in addressing the issues identified. As a result the rate of non-compliance with KYC requirements has reduced considerably. Senior management have also taken prompt action to strengthen Abbey National's central MLRO function and to address the issues surrounding SARs. These changes have resulted in a reduction of the internal backlog and improvements in reporting to NCIS.
The Abbey National Board has affirmed its commitment to deliver on a detailed and demanding remedial action plan which will ensure that both the AML and wider control failings are tackled effectively and that a robust compliance regime is put in place across the Abbey Group. As a result of this commitment, the FSA has decided not to take formal disciplinary action concerning the wider control failings.
Abbey National Asset Manager Limited (ANAM)
The FSA has also fined ANAM £320,000 for breaches of FSA Principle 2 and Rules 3.1.1 and 3.2.6 of the FSA's Senior Management Arrangements, Systems and Controls Sourcebook (SYSC).
The FSA found that ANAM failed to ensure that its systems and controls in relation to its fund management business complied with the FSA's SYSC Rules during the period between December 2001 and June 2003. The investigation revealed that ANAM repeatedly failed to act with due skill, care and diligence in addressing compliance shortcomings identified by its divisional compliance function during this period. Furthermore the resourcing of the compliance function was insufficient to maintain adequate compliance oversight which may have contributed to control failings which manifested themselves in the misconduct of a senior fund manager. ANAM was found to have lacked relevant management information that would have enabled it to identify and address regulatory risks in the period between December 2001 and June 2003.
Following a comprehensive investigation by ANAM into its dealing procedures the firm has paid out approximately £300,000 in compensation to clients of the funds which suffered losses as a result of the senior fund manager's misconduct.
In deciding the level of penalty to be imposed the FSA has taken into account that ANAM has co-operated fully with the FSA. ANAM has taken effective remedial action by implementing comprehensive systems and controls in its fund management business.