A tougher regulatory approach to individual responsibility for anti-money laundering controls could put compliance professionals in a difficult dilemma if they do not have the support of their senior executives.

In March 2015, after fining the Bank of Beirut’s UK arm £2.1m ($3.3m) and issuing joint fines of more than £30,000 to a compliance officer and an internal auditor, the UK Financial Conduct Authority (FCA) introduced a number of innovations relating to how it will levy penalties. The penalty amounts in the Bank of Beirut case are substantial for the FCA, but it is significant that two individuals were blamed and that restrictions were imposed on one of the bank’s lines of business.

The level of the penalty imposed and the FCA's singling out of personnel is similar to the approach taken by US regulators recently. This potentially signals a new tougher attitude about anti-money laundering (AML) enforcement in the UK. There are some other interesting features of this case. During the investigations it has been reported that, over a six-month period, Bank of Beirut wrote five inaccurate memos to the FCA, an extremely serious action. So, given the evidence that such misleading information was given, the financial penalty does appear rather low. However, the bank’s UK operation is also relatively small, with just £321m in assets.

After naming the compliance officer and internal audit professional involved, the FCA acknowledged that they were probably operating under pressure from senior management; a sadly common occurrence in the US as well. While they have reportedly committed egregious acts, their punishment begs the question: will senior managers and even non-executive directors of financial institutions ever be held accountable for money laundering and other compliance failures? It is also telling that while both were fined, the auditor charged with overseeing the compliance officer’s work was not dismissed.

Senior managers’ regime

Rules issued by the UK Treasury will require financial institutions to designate senior managers and non-executive directors to be held accountable for compliance failures with effect from March 7, 2016. But it is unclear whether those saddled with this (seemingly undesirable) responsibility can make a difference in terms of creating a culture of compliance. The danger is that the designated individuals will ultimately just serve as a buffer between the chairmen, chief executives and other more senior executives that run financial institutions.

Regardless, compliance officers at financial institutions have plenty of reason to be nervous. Faced with pushback from management, it is easy for those on the outside to say they should resign.

There may be a silver lining in this active debate. After the Bank of Beirut action, the FCA said it would amend its "near final" plans to penalise designated senior managers of UK banks, credit unions, investment firms and building societies for regulatory missteps. It also said it would undertake further consultation with the industry regarding its "presumption of responsibility" proposal and introduce a requirement for foreign banks to certify individuals who are liable for “the fitness and propriety of their staff”.

The 'presumption of responsibility' proposal would deem designated senior managers guilty of misconduct “unless they can demonstrate they took such steps as a person in their position could reasonably be expected to take”. This could have further impacts on banks and may result in a number of future issues. For instance, there could be lowered appetites for taking on senior positions without a significant increase in remuneration levels, to balance the increased risks as a senior manager.

Heavy burden

Research conducted across a sample of 1200 Association of Certified Anti-Money Laundering Specialists members with US financial information firm Dow Jones, to understand how new regulations impact the way companies work, highlights that the AML and compliance profession is already feeling the squeeze of new regulations. Nearly two-thirds of those polled cited increased regulatory expectations as the greatest AML compliance challenge, compared with just over half of respondents two years ago. And recruitment is also a problem. Almost 50% face challenges in recruiting and retaining trained staff; a 36% increase on two years ago. Yet, 60% of firms have needed to add AML staff in the past 12 months, a 12% increase over the past three years.

Providing essential data to support the AML challenge debate, these findings demonstrate continuing confusion surrounding changing regulatory expectations and the enormous pressure that financial institutions face. Both of these factors are important to take into consideration by regulators when developing future policy. For example, returning to the question of 'presumption of responsibility' in the FCA’s proposals, the last thing all sides would want is for someone leaving a financial institution to be blamed for problems they actually tried to fix. No one also wants compliance professionals who do resign to be blacklisted and prevented from finding another job. That would be a terrible and unfair outcome. Let us hope reason prevails.

John Byrne is executive vice-president of the Association of Certified Anti-Money Laundering Specialists

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter