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FSA/PN/060/2007
10 May 2007

The Financial Services Authority (FSA) has today fined BNP Paribas Private Bank (BNPP Private Bank) £350,000 for weaknesses in its systems and controls which allowed a senior employee to fraudulently transfer £1.4 million out of clients' accounts without permission.

This is the first time a private bank has been fined for weaknesses in its anti-fraud systems. The 13 fraudulent transactions were carried out between February 2002 and March 2005 using forged clients' signatures and instructions and by falsifying change of address documents.

During its investigation, the FSA found that BNPP Private Bank did not have an effective review process for large transactions, over £10,000, from clients' accounts. It also found that the bank's procedures were not clear about the role of senior management in checking significant transfers prior to payment. As a result, a number of fraudulent transactions were not independently checked. In addition, a flaw in the bank's IT system allowed the senior employee to evade the normal Middle Office processes. This meant that basic authorisation and signatory checks were not carried out on internal cash transfers between different customer accounts.

Margaret Cole, FSA Director of Enforcement, said:

"BNPP Private Bank's failures exposed clients' accounts to the risk of fraud. This is unacceptable particularly with the overall increase in awareness around fraud and client money risks. Senior management must make sure their firms have robust systems and controls to reduce the risk of them being used to commit financial crime.

"This is a warning to other firms that we are raising our game in this area and expect them to follow suit. We will not hesitate to take action against any firm found wanting."

BNPP Private Bank's failings were serious because they enabled significant fraud to take place and failed to detect subsequent transfers to cover it up for a long period of time. The bank also failed to improve its procedures for monitoring large transactions or carry out remedial action on a timely basis. This was despite the bank being aware that certain of its procedures required improvement as a result of an FSA visit in relation to money laundering systems and controls in August 2002 and subsequent internal reviews.

The FSA recognises that BNPP Private Bank has since taken steps to correct the failings and no customers suffered loss. Also, a subsequent independent review of the bank's anti–fraud systems and controls found them to have no significant weaknesses. The bank brought the fraud to the FSA's attention and has co-operated fully with the investigation. BNPP Private Bank qualified for a 30% discount under the FSA's executive settlement procedures by agreeing to settle at an early stage of the investigation.

Notes to editors

1. In the last two years, the FSA has fined Nationwide, Capita Group and Kyte for weaknesses in their anti fraud systems and controls.
2. BNPP Private Bank is an EEA passported firm based in London. It is wholly owned by BNPP SA France and its subsidiaries "the BNPP Group".
3. The full text of the Final Notice issued by the FSA, which includes the background to the case, the relevant statutory provisions, regulatory requirements contravened, and the factors taken into account when setting the level of the fine can be found on the website.
4. FSA Principle 3 states that a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
5. In his speech at the Financial Crime conference in January, John Tiner, FSA chief executive announced the creation of a new Financial Crime and Intelligence Division (FCID). The FCID brings together all of the financial crime expertise that was previously spread throughout the FSA and will work closely with others to identify, assess and manage criminal threats in the UK's financial sector.
6. 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; securing the appropriate degree of protection for consumers; and fighting financial crime.
7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.