On November 27, 2015, the PRA brought enforcement action against R. Raphael & Sons Plc for failings related to outsourcing certain functions to other group companies. Raphaels provides consumer finance facilities, offers savings accounts and owns ATMs around the UK which are available for public use. Under a joint venture agreement, two other group companies were to provide various aspects of Raphaels’ finance function, including payment of third parties on behalf of Raphaels and replenishment of cash stocks in the ATMs. A written agreement on the outsourced functions was not entered into until 21 months after the provision of the outsourced services began. During the relevant time, various employees of one of the group companies improperly transferred funds without the knowledge or consent of Raphaels. The improper transfers impacted Raphaels’ regulatory capital in that it had large exposures to one group company. Unaware of the improper transfers, Raphaels submitted inaccurate regulatory returns to the regulators and failed to have an accurate understanding of its capital position. The PRA fined Raphaels for breach of Principle 3 of the PRA’s Principles of Business which state that a firm must take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems, imposing a financial penalty of £1,278,165.
The PRA’s Final Notice is available at: http://www.bankofengland.co.uk/pra/Documents/supervision/enforcementnotices/en271115.pdf.