The NatWest money laundering fine - some takeaways

The circumstance behind NatWest’s £265m fine for money laundering is a fascinating read. And the Statement of Facts provides pointed insight into the failings.

• Read here - https://www.fca.org.uk/publication/corporate/agreed-statement-facts-fca-national-westminster-bank.pdf

Other institutions would do well to measure themselves against these issues and objectively assess whether similar problems have / could occur.

In summary, the issues accepted by the bank were:

1. Incorrect customer risk rating
2. Automated transaction monitoring:
   • Wrong categorisation of cash deposits
   • Lack of monitoring for certain products
   • System failure to recognise cash deposits and cheques
   • No TM differentiators for high-risk clients
   • Lack of review/tuning of the system
3. Not performing reviews in line with periodic review policy
4. Not performing reviews in line with event-driven review policy
5. When performing event-driven reviews – doing so poorly
6. Poor quality of investigations – both concerning TM and internal SARs
7. Lack of critical thinking of bank staff, for example:
   • Taking what the customer told them at face value
   • Not using data, they had to inform them of risk – for example, comparing expected activity vs actual activity

Three key takeaways:

1. No matter how large the organisation, institutions have to have a joined-up, end-to-end control framework.
   • Controls that operate in isolation will fail to achieve the overall purpose – stopping money laundering.
   • From on-boarding to exit and everything in between, the control framework needs to operate in harmony. Not easy to achieve – but this should be the goal.
2. There’s still a long way to implement a genuinely risk-based approach.
   • The bank stated that they “deeply regret that we failed to monitor one of our customers adequately”. Was this the bank’s way of appealing for a bit of perspective? One customer out of the tens of millions it banks.
   • Regardless, if the bank had a functioning risk-based approach, they would have had the time to look carefully at this customer – in a holistic way – and reach an appropriate conclusion before West Yorkshire Police came knocking.
   • The bank has spent £1.4bn on financial crime compliance since 2010 in the guise of change programmes, remediation, systems, and full-time staff; This is a staggering amount.
   • And NatWest is not alone amongst their peers in spending this amount of money.
   • Firms lose track of the purpose – the reason behind why they’re doing what they’re doing.  The prevention of money laundering gets lost, and employing a proper risk-based approach gets this focus back.
3. Firms, whatever their size, have to kick the tyres (or get someone to do it for them) to know that their controls are working as intended.
   • As the statement of facts noted, “the overarching design of the Bank’s ongoing monitoring systems and its policies and procedures concerning ongoing monitoring was in line with industry guidance”.
   • So, from a design perspective, the ongoing monitoring controls did not cause alarm.
   • However, as highlighted by the case, they did not operate effectively; and it’s always better to do this of your own volition rather than having a Regulator breathing down your neck.

Sourced from - https://www.avyse.co.uk/insights/natwest-money-laundering-fine-three-key-takeaways