Enforcement

Issue 1141 / 6 January 2022

Prudential Regulation Authority

Reporting and governance failings - PRA publishes Final Notice issued to Metro Bank - 22 December 2021

The PRA has fined Metro Bank (the Bank) £5,376,000 for failing to take sufficient care to ensure that it complied with its Common Reporting (COREP) obligations and failing to organise and control its affairs responsibly and effectively to be able to comply with its COREP obligations.

The PRA considers that the Bank, in failing to comply with its COREP obligations, breached Fundamental Rule 2, which requires firms to conduct their business with due skill, care and diligence. The Bank complied with a PRA-required internal audit of its COREP processes but, while its findings identified issues in relation to its commercial real estate loans classification, it failed to identify the full extent of errors relating to its risk weighted assets. This led to the bank issuing an incorrect market announcement in January 2019 that it was making an adjustment of its RWA for December 2018 of approximately £900 million, when this figure should have been significantly higher.

The PRA also considers that Metro Bank breached Fundamental Rule 6, which requires firms to organise and control their affairs responsibly and effectively, and meant it could not comply with its COREP obligations. In particular, the regulator found that:

  • the Bank's governance and oversight arrangements relating to its COREP reporting fell significantly below the standards expected of a firm of the Bank's size and scale;
  • the Bank's governance arrangements for regulatory returns were not supported by an effective and robust control framework; and
  • the Bank failed to allocate appropriate and adequate resources to enable it to comply with its COREP obligations.

The Bank agreed to settle during the discount stage of the PRA's investigation and, therefore, qualified for a 30% settlement discount under the PRA settlement policy. Without this discount, the PRA would have imposed a financial penalty of £7,680,000.

Final notice: Metro Bank plc

Press release

Financial Conduct Authority

AML - FCA publishes Decision Notice - 17 December 2021

The FCA has published a Decision Notice issued to HSBC Bank PLC (the Bank) indicating that the FCA has fined the Bank £63,946,800 for failings in its anti-money laundering (AML) processes.

The Bank used automated transaction monitoring systems to seek to establish and maintain appropriate risk-sensitive policies and procedures prescribed under the Money Laundering Regulations 2007 (SI 2007/2157) (MLRs 2007). However, for two of the Bank’s key automated transaction monitoring systems, the FCA found that, between 31 March 2010 and 31 March 2018 (the relevant period), it failed to comply with the MLRs 2007 as follows:

  • Regulation 20(1)(a): to establish and maintain appropriate and risk-sensitive policies and procedures; and
  • Regulation 20(1)(f): to establish and maintain appropriate and risk-sensitive policies and procedures for the monitoring and management of compliance with, and internal communication of, those policies and procedures.

The FCA noted that, despite being aware of their importance from as early as December 2007, three key components of the Bank’s automated transaction monitoring systems were deficient:

  • scenario coverage: the Bank failed to consider whether scenarios used to identify indicators of money laundering or terrorist financing covered relevant risks until 2012 and failed to carry out timely risk assessments for new scenarios after 2016;
  • parameters: the Bank failed to appropriately test and update the parameters within the systems that were used to determine whether a transaction was indicative of potentially suspicious activity; and
  • data: the Bank failed to check the accuracy and completeness of the data being fed into, and contained within, the automated transaction monitoring systems. This meant that types of transactions that were £millions in volume and £billions in value were either monitored incorrectly or not at all.

The FCA considers the Bank’s failings to be particularly serious because: (i) they happened over a prolonged period of time despite numerous internal and external reports highlighting the failings throughout the relevant period; (ii) the Bank was put on notice of the potential weaknesses in this area in 2012 when the US Department of Justice found that the HSBC Group’s US subsidiary failed to monitor wire transactions from Mexico; and (iii) the FCA issued guidance both before and during the relevant period where it stressed the importance of maintaining appropriate financial crime controls.

The FCA did, however, recognise the Bank’s commitment to its large-scale global remediation programme and its agreement to settle the matter at the earliest opportunity. That, coupled with the fact that it did not dispute the FCA’s findings, meant it qualified for a 30% discount on the financial penalty.

FCA Decision Notice

Press Release