UK: FCA Reminds Senior Managers To Take An Active Role In AML Procedures

Last Updated: 17 December 2018
Article by Garon Anthony and Rose Chaudry

Last week the FCA published a Decision Notice which imposed a fine of £76,400 on the former CEO of Sonali Bank (UK) Ltd ("SBUK"), Mohammed Ataur Rahman Prodhan ("Mr Prodhan"), for "acting without due skill, care and diligence and for being knowingly concerned in a breach by SBUK of its obligations to maintain effective anti-money laundering (AML) systems".

The FCA's decision is a sobering warning to all senior management figures at FCA regulated businesses that they must take an active role in anti-money laundering ("AML") policies and procedures.

This follows on from the £3.25 million fine that the FCA imposed on SBUK in December 2016 for serious AML systems failings and the £17,500 fine imposed at the same time on its former MLRO.

Background

The FCA had identified in 2010 several issues with SBUK's AML systems and controls. SBUK senior management gave assurances that they would address these issues in the future. Mr Prodhan joined SBUK as its CEO in April 2012, a role he continued to hold until May 2015. He was aware of the concerns raised by the FCA in 2010 and the promises made by the SBUK senior management in that regard.

Recommended steps based on the FCA findings

The FCA findings make it clear that senior individuals at regulated businesses should implement the following controls:

1 Have an adequate Conduct Risk framework.

In 2012, internal auditors reviewed SBUK's approach to risks and found that its risk register was out of date and impractical.

The auditors recommended that the senior management team develop a more effective risk register to identify, assess and record 'live' and potential risks. The senior management team failed to do this, leaving SBUK vulnerable to risks associated with AML and financial crime.

2 Take ownership of the risk framework.

Mr Prodhan's management style was one of delegation. This included delegating the responsibility for AML risks when he should have taken responsibility for them himself.

The FCA criticised Mr Prodhan for failing to take reasonable steps to ensure he had an adequate understanding of the risks to SBUK's business. This meant that he was at best wilfully ignorant and at worst negligent of the AML practices taking place in SBUK.

3 Foster a culture of compliance.

It is the role of the CEO and senior management to set a company's culture and values. Mr Prodhan failed to do this and the staff at SBUK had not been encouraged to understand or value a culture of compliance. This meant that no one within SBUK considered themselves responsible for AML compliance.

The FCA focused on two particular failings regarding the culture of compliance at SBUK.

A lack of training and clear procedures: the AML Staff Handbook at SBUK provided little practical advice or guidance on how to follow AML processes

A lack of communication throughout SBUK: in particular, Mr Prodhan failed to ensure that there was sufficient communication with SBUK's local branches, particularly regarding AML risks/ This meant that there was no consistency between the workings of operational staff within SBUK's branches and the head office's (admittedly weak) compliance practices.

4 Consider and act on warnings.

There were also systematic failings by Mr Prodhan to heed the warnings given by several parties, including internal auditors and the FCA.

Furthermore, Mr Prodhan completely failed to manage or equip the MLRO. In particular, the FCA noted that the MLRO's reports were inadequate and did not provide a detailed analysis of SBUK's AML practices. Mr Prodhan failed to question the MLRO about this or hold regular meetings to discuss the MLRO's findings in more detail.

Comment

As we have said previoulsy, the FCA is increasing its attention on the personal accountability of senior individuals within FCA regulated businesses and this case shows the FCA's resolve in this regard. Senior managers must d consider reviewing their own AML practices in light of the FCA's reasons for imposing the fine on Mr Prodhan.

Mr Prodhan has referred the Decision Notice to the Upper Tribunal for review and so the fine will not take effect, pending the Tribunal's decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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