UK Regulator Fines Major Bank for AML Control Failings Related to Mirror Trading

The Financial Conduct Authority published a final notice issued to a major bank and fined it £163 million for failing to maintain an adequate anti-money laundering control framework between January 1, 2012 and December 31, 2015. The bank notified the FCA in early 2015 of concerns about its AML control framework after the bank had begun an investigation into suspicious securities trading, known as "mirror trading". The orders for both sides of the mirror trades were received and executed by the bank's Moscow office. The Moscow office executed the trades on behalf of the bank via remote booking by directly booking trades to the bank's trading books in the UK. The FCA's investigation revealed that the mirror trading was able to be executed by the bank's Moscow office because of the widespread deficiencies in the bank's AML control framework, in particular, the bank performed inadequate customer due diligence, failed to ensure that its front office took responsibility for it's Know Your Customer obligations, used flawed customer and country risk rating methodologies, had deficient AML policies and procedures, had an inadequate AML IT infrastructure, lacked automated AML systems for detecting suspicious trades and failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions. 

The FCA noted that the scale, volume and the way the trades were conducted were "highly suggestive" of financial crime. The bank was used by unidentified customers to transfer approximately $10 billion, of unknown origin, from Russia to offshore bank accounts. As a result, the bank had put itself and the UK financial system at risk. However, the regulator considered that the failings in the AML framework had not been committed deliberately or recklessly and there was no evidence that any of the senior management or employees of the bank in London had been aware of or involved in the suspicious trading.  

The fine is made up of a disgorgement of around £9 million and a penalty of £154 million. The bank has undertaken to cooperate with any other regulator or enforcement agency that is investigating or commences an investigation into the matter. 

View the final notice.

View the FCA announcement.