Standard Life Bank Isle of Man was fined £247,324 after an investigation by the Island Financial Services Authority found “serious regulatory violations”.
The IOMFSA required Standard to pay a discretionary civil penalty imposed under section 16 of the Act and in accordance with the Financial Services Regulations 2015 of £353,320 discounted by 30% to £247,324.
The level of civil penalties reflects the fact that Standard cooperated with the Authority and agreed to an early settlement through the use of the IOMFSA enforcement decision making process. In this case, the Authority stated that it was confident that the failures were isolated and not systematic across the business. Standard was amended quickly in response to identified concerns and concerns from the Office.
In April 2021, the Standard found that in September 2020 he acted in violation of the terms of a restraining order issued by the Isle of Man courts under the Proceeds of Crime Act 2008.
The Court Order limited, among other things, the designation, reduction, divestment and management of funds relating to the specified bank accounts in the name of a standard client.
Standard immediately informed the Authority of this matter in connection with its obligations under the anti-money laundering and counter-terrorism financing laws and Financial Services Rule Book 2016.
The violation of the Court Order involved two steps: securing the transfer of funds between Blocked Accounts at Standard; and processing an instruction from a client for onward transfer of funds outside the jurisdiction of the Isle of Man, albeit to another entity within the Standard Bank group.
The Authority, having examined the notification along with other information, has decided that it should use the powers under Schedule 2 of the Law to investigate the compliance of the Standard with AML/CFT legislation.
Standard was notified of the opening of such an investigation by Autority in May 2021.
In June 2021, Standard submitted a full and detailed Incident Report to the Authority following its own investigation. Standard continued its own root cause analysis, sharing its findings with the Office, through November 2021.
In its findings, the regulator stated that Standard has procedures in place to allow “freezes” to be applied either to a specific customer or to specific accounts.
These “locks” and their associated controls are designed to prevent transactions from being processed in some cases. For this purpose, these “locks” and their associated controls are referred to as “preventive controls”.
The preventive controls that were in place at the time of the violation of the court order were such that they differed between transactions involving non-Standard banking institutions and Standard-related banking institutions.
Violation of the Court Order is associated with certain deficiencies in preventive controls in relation to intra-group transactions.
Further, Standard only identified the issue in April 2021 when the client requested a third-party transaction.
In this case, Standard did not have proper detective control. This is evidenced by the fact that the violation of the court order occurred in September 2020, but Standard did not reveal the violation until April 2021, after which the funds were promptly returned in full to the Restricted Accounts.
In addition, Standard only identified the problem in April 2021 when a client requested a transaction with a third party.
Standard acknowledges that the failures are due to weaknesses in its operational controls and “locks” systems applied to customer accounts, which are designed to ensure that funds cannot be moved from such accounts in certain circumstances.
Standard also acknowledges that it did not have sufficient controls in place to detect the problem in a timely manner.
The failures resulted in a number of violations of the 2016 Financial Services Rules by Standard.
A breach of Rule 6.1 of the Rule Book in that Standard did not act with due skill, care and diligence in carrying on regulated activity;
A breach of rule 6.5 of the provisions of this Standard has resulted in business being conducted in a manner that could discredit the island or prejudice its position as a financial center; as well as
A breach of Rule 8.3(2) of the Rule Book. This Rule requires that “The responsible officers of a licenceholder must establish and maintain appropriate internal and operational controls, systems, policies and procedures relating to all aspects of its business to ensure appropriate safeguards to prevent and detect any abuse of the licenceholder’s services for money laundering, financial crime, the financing of terrorism, or the proliferation of weapons of mass destruction”.
Those same failings also resulted in Standard contravening paragraph 4(1)(a)(iii) of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 which requires Standard not to enter into or carry on a business relationship…unless Standard establishes, records, operates and maintains procedures and control in relation to internal controls and communication matters that are appropriate for the purpose of forestalling and preventing ML/TF.
The IOMFSA was pleased that the imposition of a Civil Penalty on the Standard adequately reflects the seriousness of non-compliance with Standard and the importance the Authority places on all parts of the regulated industry, in particular banks, which are key custodians, by complying with all elements of the AML/CFT Legislation.
In accordance with the EDMP, Standard entered into discussions with the Authority and, having agreed with the findings of the Authority’s investigation, sought to resolve the issues expeditiously.