Financial services firms dealt tens of millions in regulatory fines

While deregulation may be the political mood, UK watchdogs are sharpening their swords as banking giants bleed millions in regulatory fines.

In under just ten days, the Financial Conduct Authority and Bank of England handed out £74.9m worth of fines to a trio of UK financial services firms. 

Leading the pack, and most recently, was Barclays after the bank was put on the hook for £42m after failings in its financial crime risk management.

The City regulator slammed the banking juggernaut for failing to conduct “one simple check” of the Financial Services register before opening an account at risk of money laundering.

Abdulali Jiwaji, banking litigation partner at Signature Litigation, told City AM: “The facts underlying the Barclays action were spectacular”.

The fine grouped two separate instances of regulatory mishaps, with the second referring to Barclays’ failure to adequately manage money laundering risks associated with providing banking services to precious metals company Stunt & Co.

The regulator said Barclays only reviewed its exposure to multimillion-pound money laundering operation Fowler Oldfield after its peer Natwest was prosecuted due to its own ties. Natwest was slapped with a £264.8m fine in 2021 for anti-money laundering failures.

Jiwaji said: “The FCA picked up on several missed opportunities for reviewing and identifying the money laundering risks associated with that business, including law enforcement requests and adverse media which indicated criminal investigations into money laundering.”

But he noted Barclays decision to “proactively self-report” and “engage in a significant remediation program to enhance its AML control framework” helped the lender’s fate.

Fintech faces existential problem 

Whilst Barclays’ deep pockets will soften the blow, Richard Cannon, financial crime lawyer at Stokoe Partnership Solicitors, warned an industry-wide crisis was hitting fintech.

Digital bank Monzo was hammered with a £21m fine after “repeatedly” opening accounts for “high-risk” customers, who used 10 Downing Street and Buckingham Palace, and even Monzo’s own address, as their address.

Cannon told City AM: “In the case of Monzo, the bank’s failure to spot suspicious onboarding is emblematic of broader institutional issues.”

“Fintechs chasing rapid expansion without matching investment in AML systems risk falling foul of the FCA, which might affect their very existence.”

Monzo’s fine follows the City watchdog slapping its fintech peer Starling with a £29m fine for “shockingly lax” financial crime controls.

The regulator found the bank had opened more than 54,000 accounts for 49,000 “high-risk customers” between September 2021 and November 2022.

Jiwaji said fintech’s reliance on transaction monitoring systems and their “inability to pick up on red flags” had resulted in the recent string of fines.

The Bank of England joined the fining frenzy last week issuing its first ever fine to a financial market infrastructure firm.

Mastercard-owned Vocalink was the subject of a regulatory strike after the bank said its ineffective risk management framework, combined with weakness in its controls, governance arrangements and escalation processes meant that the firm had failed to comply with requirements. 

FCA lays down the law

The FCA’s action comes as Chancellor Rachel Reeves spearheads a row back on regulation.

Reeves announced a package of reforms in her Mansion House speech in her bid to make watchdogs “regulate for growth”.

Duncan Grieve, white collar crime partner at Signature Litigation, said: “Failures relating to money laundering and fraud are a current area of focus for UK regulatory and prosecutorial agencies.”

Grieve noted that from September, a “new criminal offence will make it easier to prosecute companies for failing to prevent fraud” leading to firms tightening up their internal controls.

Section 199 of Economic Crime and Corporate Transparency Act 2023 will create a new “failure to prevent fraud” offence. 

The section will remove the need for prosecutors to prove that senior management knew about or directed the fraud, shifting the burden onto companies to proactively demonstrate robust anti-fraud measures.

Director of the Serious Fraud Office (SFO) Nick Ephgrave sent a stark warning to firms earlier this year.

The SFO boss vocalised his intention to be the first agency to prosecute a company under the new legislation and said he will “show no mercy” to companies that have not got their regulatory measures in order come September.

“We can’t sit with the statute books gathering dust, someone needs to feel the bite,” he said. 

After a week that drained millions from firms in fines, financial services players will be racing to beef up internal controls before the watchdog comes for a second bite of the cherry.