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Written by Jake Plenderleith on Tuesday July 10, 2018
Canara was warned its money laundering controls were inadequate and so its failure to remediate them properly is at the more serious end of the range of sanctions.
Mark Steward, FCA Executive Director of Enforcement and Market Oversight
The £896,100 fine recently imposed on Canara Bank by the FCA is a useful example of the thinking behind penalties issued by the UK regulator.
Canara, owned by the Indian government, was found to have ‘failed to maintain adequate systems and controls to manage the risk of money laundering’, the FCA said, and further, that measures taken to rectify these deficiencies were inadequate. Some of the deficiencies identified by the FCA as long ago as 2012 at Canara were still not addressed by 2015.
One of the most eye-opening aspects of the story is that staff from Canara’s head office in Bangalore seconded to the bank’s London office did not possess a sufficient understanding of the statutory and regulatory AML measures required in the United Kingdom.
Canara was fined as they exacerbated their initial wrongdoing by failing to rectify problems aired by the FCA. Concerns were first raised in 2012 on a Trade Finance Thematic Project FCA visit, where the regulator identified ‘serious weaknesses’ in Canara’s AML systems and controls.
These concerns were again flagged in 2013. A final visit two years later in which the FCA declared changes related to the highlighting of their concerns to be insufficient moved them to take action: the PRA appointed a Skilled Person in September 2015 to carry out an assessment of Canara’s AML controls.
The Skilled Person’s report underlined a number of alarming deficiencies, including an ineffective and poorly designed corporate governance structure, inappropriately designed AML systems and controls, a risk management and governance framework ‘not fit for purpose’ and a lack of understanding of the bank’s AML risk profile. Such were the findings that moved the FCA to impose a fine.
Why did the FCA opt to issue a penalty quite so high on Canara Bank? The answer to that lies in the fact that Canara did not take adequate action following the FCA’s initial warnings, something which would have seen them avoid a financial penalty.
The fine they did receive, however, was reduced by 30% on the basis that the bank agreed to settle early on in the investigation. The FCA’s Final Notice report also acknowledged that Canara had subsequently put resources into its AML controls, ‘including appointing a new MLRO who has previous AML experience’.
Nevertheless, they will not be able to accept new deposits for 147 days (5 months). The FCA applied this sanction on top of the financial penalty as it felt that curbing activity, in conjunction with a fine, is a more effective deterrent to other banks than a financial penalty alone.
The most striking aspect of this case is that Canara was given plenty of opportunities to avoid such an outcome which were not seized with a sufficiency that satisfied the FCA. The regulator in its announcement of the fine imposed on Canara did acknowledge that the issues highlighted had now been addressed by the bank.
What can be taken away from this case? Surely the most pressing (and perhaps most obvious) point is that staff seconded into a new jurisdiction should be aware of the region’s laws and regulations regarding money laundering and financial crime. Second, that FCA penalties will not necessarily be merely financial. Third, that a reasonable response to identified shortcomings will mean a financial fine will be avoided all facts that Canara Bank are now no doubt acutely aware.
This article forms part of the #BigCompConvo - Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the Big Compliance Conversation get in touch with us at firstname.lastname@example.org
Why not study for the ICA Diploma in Anti Money Laundering?
The challenge of managing transnational and international AML risks is one that demands an internationally ‘joined up’ approach and a common understanding of emerging trends. The ICA International Diploma in Anti Money Laundering helps you develop best practice initiatives and prepares you to face the present and future challenges, reducing risk.
This qualification is awarded in association with Alliance Manchester Business School, the University of Manchester.
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