The United Kingdom Financial Conduct Authority ("FCA") has imposed a GBP42 million penalty on Barclays Bank for shortcomings in its anti-money-laundering ("AML") systems and controls. It concerns two unrelated customer matters involving precious metals company Stunt & Co, which received funds from a money-laundering operation, and wealth-management firm, WealthTek (which also traded as Vertem Asset Management and Malloch Melville). Although the FCA did not find that Barclays had itself laundered funds, it concluded that the bank failed to gather adequate customer information, neglected to conduct effective ongoing monitoring, and ignored clear red flags, even after receiving law-enforcement warnings and witnessing police raids. The fine offers a timely and direct warning to South African financial service providers and accountable institutions that local and foreign regulators expect robust, proactive, and demonstrably effective AML frameworks, and will impose significant penalties where required standards are not met.
The Barclays case underscores the importance of comprehensive customer due diligence from the outset of every relationship and risk-based monitoring as long as the relationship subsists. Institutions should ensure that onboarding teams obtain and maintain detailed, verifiable information, particularly when dealing with high-risk sectors such as precious metals or complex wealth-management structures, and that transaction-monitoring systems are designed to flag unusual activity promptly. When red flags do arise, management must act immediately because delayed or conservative responses which aim to protect the relationship with customers are increasingly viewed by regulators as unacceptable. The FCA criticised Barclays for continuing to transact with its precious metals' customer after law enforcement alerts and after police had raided connected entities, including Fowler Oldfield, demonstrating that failure to take decisive action in the face of warning signs will attract regulatory censure.
In the WealthTek matter, Barclays did not consult the Financial Services Register to confirm that its new client was authorised to hold client money and this omission placed millions of pounds at risk and contributed to the penalty. The enforcement action by the FCA highlights the necessity of performing basic regulatory checks before providing services. In South Africa, it is important to verify licensing and registration statuses of financial service providers with the Financial Sector Conduct Authority ("FSCA") and the South African Reserve Bank ("SARB") as part of standard onboarding processes, and to retain all information relating to such verifications.
Board and senior management accountability remains central to the fight against money laundering. The FCA repeatedly emphasised that effective AML compliance is a board-level responsibility, and that senior managers must be able to demonstrate active oversight. In South Africa, Financial Intelligence Centre Guidance Note 7A ("GN 7A") makes it clear that the board of directors, senior management and other persons in authority are solely responsible for the effectiveness of Risk Management and Compliance Programmes ("RMCPs") and will be held accountable for failures in this regard.
The Barclays investigation also illustrates the value of early cooperation and remediation. Although the fine was sizeable, it was reduced materially in recognition of the bank's voluntary payment to affected clients and its extensive cooperation with the FCA. South African institutions should therefore cultivate a culture of transparency with regulators, engaging proactively if weaknesses are identified and offering remedial action, both financial and operational, before enforcement commences.
Finally, the reputational consequences of an AML failure can be severe, impacting customer confidence and market valuation long after fines are paid. A robust compliance culture, supported by continual investment in technology and staff training, is no longer merely a regulatory requirement, it is integral to safeguarding the integrity of the financial system.
Key action points
In light of the Barclays decision, institutions are advised to immediately review AML frameworks focusing on six priority areas:
- enhancing customer due diligence and ongoing monitoring, with special attention to high-risk clients and sectors;
- investing in advanced monitoring technologies and regular staff training;
- implementing clear escalation protocols to ensure prompt action when red flags emerge;
- verifying counterparties' regulatory status before offering any service involving client assets;
- ensuring that board and senior management level accountability is understood and supported by effective RMCPs; and
- engaging with the FSCA and the SARB when issues are detected.
These steps can assist South African institutions to reduce regulatory, financial, and reputational risk while aligning them more closely with evolving global standards. It will also demonstrate to both regulators and the market that they are committed to maintaining the highest levels of integrity in the fight against financial crime.
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.
