UK: Senior Manager Learning Points From FCA Decision Notice Against Sonali Bank CEO

Last Updated: 12 March 2019
Article by Daren Allen, Celyn Armstrong and Katharine Harle

Introduction and background

In a recently published decision notice, the FCA has proposed to fine Mohammad Ataur Rahman Prodhan, the former CEO of Sonali Bank (UK) Ltd (SBUK), £76,400 for anti-money laundering (AML) failings which took place between 7 June 2012 and 4 March 2014. This follows on from final notices published by the FCA in October 2016 against SBUK and its Money Laundering Reporting Officer (MLRO) imposing financial penalties of £3,250,600 and £17,900 respectively. Mr Prodhan has referred the FCA's decision to the Upper Tribunal which will determine what action, if any, is appropriate for the FCA to take. Although the notice concerns events prior to the Senior Managers and Certification Regime (SMCR) coming into force, it has potential learning points for current senior managers.

The final notice published against SBUK in October 2016 found it had breached FCA Principle 3 for having serious and systemic weaknesses in its AML controls. This included identifying issues with SBUK's senior management team and failings in its AML policies and procedures. SBUK was also found to have breached Principle 11 for failing to notify the FCA (for a period of at least seven weeks) that a significant fraud had been alleged whilst it had been under FCA investigation. In addition, SBUK's MLRO was fined for failing to exercise due skill, care and diligence in carrying out his duties and for being knowingly concerned in SBUK's breach of Principle 3. The FCA found that the MLRO had demonstrated a "serious lack of competence and capability".

The FCA, in its more recent decision notice, found that Mr Prodhan had breached APER Statement of Principle 6 which required him to exercise due skill, care and diligence in managing SBUK's business. In particular, Mr Prodhan was found to have "failed to appreciate the need to give sufficient focus to regulatory compliance and to take reasonable steps to ensure the adequacy of SBUK's AML systems and controls to prevent financial crime." The FCA also found that Mr Prodhan had been knowingly concerned in SBUK's breach of Principle 3 which requires a firm to take reasonable steps to ensure it has organised its affairs responsibly and effectively, with adequate risk management systems.

Regulatory framework

(i) Requirements on firms

Firms' AML obligations are primarily found in the Money Laundering Regulations 2017. Firms are required to carry out customer due diligence by identifying their customers and verifying those identities. In certain circumstances, firms must also take additional steps to verify a customer's source of wealth. Principle 3 requires an authorised firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems including in relation to financial crime.

The FCA Handbook provides a large amount of detailed guidance on how firms should act in relation to financial crime risks in the Financial Crime Guide section of the FCA Handbook. In addition, the FCA regularly issues Financial Crime Thematic Reviews on particular issues (for example, on banks' control of financial crime risks in trade finance).

(ii) Requirements on individuals

During the period from June 2012 to March 2014, Mr Prodhan held the certified functions CF1 (director) and CF3 (chief executive) under the former approved persons regime. For banks, this has of course since been replaced by the SMCR which came into force in March 2016. The corresponding senior manager functions are SMF1 (chief executive) and SMF3 (executive director). In addition, banks must appoint as a senior manager the person who acts in the capacity of the MLRO (SMF17). This is no different to the position under the former approved persons regime. A key change compared to the approved persons regime is that, under SMCR, senior managers must be allocated certain prescribed responsibilities. One of these is the overall responsibility for the firm's policies and procedures for countering the risk that the firm might be used to further financial crime. This includes the risk that a firm will be used for money laundering and whoever is appointed as the firm's SMF17 will often be allocated this responsibility, although, given the responsibility is broader than just AML, this will not always be appropriate.

As mentioned above, APER Statement of Principle 6 requires an approved person to manage the business of the firm for which they are responsible with due skill, care and diligence. The equivalent requirement under SMCR can be found in Conduct Rule 2. All employees of an authorised firm, with the exception of ancillary staff, are now expected to act with due care, skill and diligence. COCON 4.1.4-8 provides guidance on this specifically for managers. In addition, senior managers are required to take reasonable steps to ensure the business they are responsible for is: (a) controlled effectively (Senior Manager Conduct Rule 1); and (b) complies with the requirements and standards of the regulatory system (Senior Manager Conduct Rule 2). Guidance on compliance with the conduct rules can be found within COCON 4.

Failings identified by the FCA and guidance on what firms should do

We set out below the key failings of Mr Prodhan and indications of the FCA's expectations as well as referring to COCON guidance that is relevant now and to events since 2016.

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