Money Laundering Regulations warning

17th March 2021

The FCA (Financial Conduct Authority) has announced that it has commenced a criminal prosecution against NatWest Bank Plc under the Money Laundering Regulations 2007 (2007 Regulations).

The FCA sends a strong message about its role as Gatekeeper of the Money Laundering Regulations

This is especially pertinent as this is the FCA’s first criminal prosecution under the 2007 Regulations and its first criminal prosecution under the 2007 Regulations against a bank. Historically, the FCA has used its regulatory toolbox to discipline firms for systems and controls breaches.

The FCA alleges that NatWest failed to conduct and demonstrate adequate ongoing monitoring of its business relationships with its customers. In particular, it failed:

  • to scrutinise transactions through the course of the relationship (including source of funds where necessary) ensuring that transactions were consistent with its knowledge of the customer, their business and risk profile;
  • to review and update due diligence of its customers, and;
  • to carry out enhanced due diligence and ongoing monitoring where appropriate.

Historic offences

The offences are historic and relate to the period 11 November 2011 and 19 October 2016. The FCA alleges that in the period a total of £365 million was paid into a single UK incorporated customer’s accounts, of which £264 million was paid in cash. It is alleged that NatWest’s systems and controls failed to adequately monitor and scruntise this activity.

Money laundering regulations

NatWest is scheduled to appear at Westminster Magistrates’ Court on 14 April 2021.

This criminal prosecution should be seen as a sign of things to come. Whilst the 2007 Money Laundering Regulations has since been replaced (and further amended) by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017, the 2017 Regulations impose greater obligations on firms to assess, manage and monitor the money laundering risks posed by its business activities. The FCA has not currently indicated whether it also intends to bring disciplinary proceedings against any senior managers but given the FCA’s current approach of bringing regulatory proceedings against the firm itself and also any relevant senior managers, these may well follow.

The importance of risk assessments and robust systems

This highlights the importance for firms to ensure that they carry out regular risk assessments of their business; have implemented robust policies and procedures along with robust systems and controls which are commensurate with the risk assessment of the business; and that they retain adequate records to demonstrate that they have done so.

Felicity Rowan specialises in financial services regulation, including advising firms on policies, systems and controls.

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