The Bank of Beirut (UK) Ltd first found itself in hot water with the Financial Conduct Authority (FCA) following the regulator’s visits to the bank in 2010 and 2011. The FCA was concerned that the culture at the Bank was “one of insufficient consideration of risk or regulation despite the high risk that its business might be exploited to facilitate financial crime”. Following a series of failures by the bank to fulfil the FCA’s remediation plan and misleading communications from the Bank’s former compliance officer, Anthony Wills, and internal auditor, Michael Allin, the FCA announced today  (5 March 2015)that the Bank had been fined £2.1 million and banned from acquiring new customers that are resident or incorporated in high risk jurisdictions for 126 days. Wills and Allin have also been fined £19,600 and £9,900 respectively for “failing to deal with the regulator in an open and cooperative way when responding to queries about the actions taken to mitigate financial crime risk”. These fines and bans were imposed in respect of the Bank’s breach of the FCA’s Principles for Businesses, Principle 11 (Relations with regulators); and Wills and Allin’s respective breaches of the FCA’s Statement of Principles for Approved Persons, Principle 4 (Relations with regulators).

In the spring of 2011 the FCA completed an ARROW Risk Assessment of the Bank and carried out a review of some of the Bank’s client files. These actions resulted in the FCA finding many deficiencies in the Bank’s customer due diligence and monitoring processes; numerous internal audit issues; and a lack of adequate compliance monitoring. The FCA set out its findings from the ARROW Assessment in a letter, with a Remediation Plan attached, which it expected the Bank to carry out by 1 June 2012. The FCA also ordered the Bank of Beirut to review and remediate 15 client files that the FCA had found deficient in customer due diligence.

When the FCA followed up with the Bank in mid-June 2012, the Bank confirmed that “the Remediation Plan action points [had] been implemented and … embedded in the Bank’s policies and procedures”. The FCA asked for documents to evidence the completion of the action points, and the Bank continued to suggest that full implementation of the Remediation Plan had been actioned, producing several reports to the same effect.

However, upon further investigation the FCA discovered that not only had the Bank of Beirut failed to implement certain Remediation Plan action points, they had repeatedly provided inaccurate information to the regulator, failed to remediate the deficient client files and further failed to inform the regulator of its failures. In addition to this conduct resulting in a financial penalty of £2.1 million for the Bank, the FCA used its restriction power for the second time in its history. This display of willingness to impose restriction or suspension penalties may act as a deterrent for other firms if they have previously regarded that particular power as largely illusory.

As for the individuals involved, Anthony Wills and Michael Allin were both responsible for addressing certain action points in the Remediation Plan. Wills was also responsible for much of the communication between the Bank and the FCA in which misleading and inaccurate statements were made, and Allin provided false assurance that the Bank’s processes had been improved. Being controlled function holders, they both had personal obligations to the FCA and were individually investigated and subject to personal fines. Although the FCA acknowledged that Wills and Allin were influenced by comments made by senior management to act in the way that they did, Georgina Philippou, the FCA’s acting Director of Enforcement and Market Oversight said “we are reliant on compliance officers and internal audit to act as a first [sic] line of defence, to support effective regulation at firms and to show backbone even when challenged by their colleagues”.

In the Wills and Allin Final Notices, the FCA expressly states that “at times [Wills] felt under pressure from senior management to be ‘careful’ in his communications with the authority, and that he was not given ‘licence’ to explain issues fully to the Authority“; and that “Mr Allin was [also] influenced by comments made by senior management“. However, it does not say whether this pressure and influence was so significant that it was inconsistent with the FCA’s guidance (APER 4.4.5G), to the point where the FCA considered, or is still considering, potential action against one or more of the Bank’s senior managers as well.

Each of the Bank, Wills and Allin settled with the FCA at the earliest reasonable opportunity. So each relevant fine was 30% lower than it would otherwise have been. Wills fine was also reduced by another 10% because he volunteered information during an exit interview with the FCA, which took place on 12 December 2012.

The Final Notices addressed to the Bank, Wills and Allin are here, here and here. The FCA’s press release is here. The FCA has chosen not to use its prohibition or other powers against Wills or Allin, as well as or instead of, imposing fines.  Allin still therefore appears on the FCA’s financial services register as a controlled function holder and approved person (CF28 (Systems and controls)) at the Bank of Beirut.