FSA fines Royal Bank of Scotland Plc 750,000 for money laundering control failings

Carol Sergeant, Managing Director of the FSA, said:

"This fine demonstrates that the FSA takes anti-money laundering compliance very seriously indeed. The steps RBS took to satisfy itself that their clients really were who they claimed to be were inadequate. We have made clear that we expect all financial firms to have strong and effective anti-money laundering procedures in place and - equally importantly - to ensure that they are properly implemented. This requires firms to monitor the effectiveness of those procedures to ensure an appropriate standard of compliance. Firms that fail to do this lay themselves open to increased risks of being used for money laundering. "

"The good news in this case is the prompt and effective way in which the shortcomings were addressed once senior management became aware of them. As a result of this, and RBS's open and constructive approach to the FSA's investigation, the fine imposed is very substantially lower than it otherwise would have been. The other good news is that there is no evidence of actual money laundering having taken place. "

The FSAs investigation revealed weaknesses in RBSs anti-money laundering controls across its retail network. The investigation found that RBS failed either to obtain sufficient 'know your customer' (KYC) documentation adequately to establish customer identity, or to retain such documentation, in an unacceptable number of new accounts opened across its retail network in early 2002. There was insufficient evidence to show that the clients were who they had claimed to be, whilst in some cases RBS were unable to supply copies or details of the documents (such as a valid passport, a driving licence, a recent utility bill) it had used to verify identity. Examples of inadequate verification of identity are where the bank only verified a client's name but not his address, or where the documents the bank obtained were not capable of verifying identity.

The breaches occurred despite increased regulatory emphasis on the importance of effective anti-money laundering controls in anticipation of the FSA's new powers to make Rules relating to the prevention of money laundering which took effect from 1 December 2001.

In mitigation, RBS discovered the problems through its own testing in December 2001. Additionally, although the breaches revealed weaknesses in RBS's anti-money laundering controls, in most cases at least some attempt had been made to identify the customers. RBS devoted considerable resources at an early stage to correct the problem and has instituted Group-wide monitoring of 'know your customer' compliance rates in an effort to ensure that a similar problem does not occur again. This action has caused the failure rate to fall significantly from April 2002 and the FSA is satisfied that the bank has dealt with the issue effectively.

Notes for editors

1. The FSA concluded that RBS had contravened Rules 3.1.3 of the FSAs Money Laundering Rules. Rule 3.1.3 provides that:

   • (1) A relevant firm must take reasonable steps to find out who its client is by obtaining sufficient evidence of the identity of any client who comes into contact with the relevant firm to be able to show that the client is who he claims to be.

2. The FSA also concluded that RBS had contravened Rule 7.3.2 . Rule 7.3.2 provides that:

   • (1) A relevant firm must make and retain, for the periods specified in (2), the following records:

     (a) in relation to evidence of identity:

     (i) a copy of the evidence of identity obtained under ML3; or
     (ii) a record of where a copy of the evidence of identity can be obtained; or
     (iii) when it is not reasonably practicable to comply with (I) or (ii), a record of how the details of the evidence can be obtained; and
     when it has concluded it should treat a client as financial excluded (ML3.1.5G to ML3.1.7G financial exclusion), a record of the reasons for doing so;.."

     (2) The specified periods are:

     (a) in relation to evidence of identity, five years from the end of the relevant firms relationship with the client.
     

3. Documents that can be used to verify a customers identity - that is, his or her name and address - are set out in the Joint Money Laundering Steering Group Guidance Notes and include a valid passport, a driving licence and a recent utility bill.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

5. Enforcing breaches of the Money Laundering Rules is only one aspect of the FSAs work in reducing the extent to which regulated firms can be used for the purpose of money laundering and terrorist financing. The FSA also works with the financial services industry to develop anti-money laundering initiatives, share best industry practice and provide training. Recent FSA projects include:

   • Working with the 6 major UK banks (including RBS) to agree an anti-money laundering initiative to re-confirm the identity of their existing customer bases (further details at http://www.fsa.gov.uk/pages/library/communication/pr/2002/075.shtml)

   • Publishing the results of an FSA review of current practices across a number of banks and building societies in the retail banking sector (further details at http://www.fsa.gov.uk/pubs/other/ml_domestic_banking.pdf)

   • Hosting a money laundering conference for the financial services industry in July 2002.

6. Further information about the FSAs anti-money laundering work can be found on the FSA website at http://www.fsa.gov.uk/what/ml_terrorist.html

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

8. Copies of the Final Notice in this case are available on request from the FSA Press Office.