FCMC fines Signet Bank with EUR 906,600 for breaching AML rules

  • 2020-07-16
  • LETA/TBT Staff

RIGA - The Board of the Financial and Capital Market Commission (FCMC) has decided to impose a five of EUR 906,610 on Latvia's Signet Bank for breaches of the anti-money laundering and counter terrorism and proliferation financing (AML) regulatory requirements, LETA was told at the commission.

The FCMC has also subjected the bank to a number of legal obligations, including the submission to the FCMC an action plan for addressing breaches and shortcomings identified and carrying out an independent review of efficiency and compliance of internal control system with the AML regulatory requirements.

The FCMC carried out an on-site inspection of Signet Bank in the AML area, as well as an on-site targeted inspection to examine compliance with the AML regulatory requirements when starting business relations with individual customers and carrying out customer due diligence and transaction monitoring.

During the inspections, the FCMC identified breaches and deficiencies related to inappropriate Bank’s internal control system, customer base risks and risk management.

The FCMC identified the following irregularities in the activities of Signet Bank: the bank had not taken sufficient measures to make certain that a beneficial owner indicated by the customer subject to due diligence, indeed was the beneficial owner; the bank had not verified the origin of financial means in its customers’ accounts, obtaining documents that certify the origin of financial means, and had not documented conclusions on the findings; the bank had failed to timely ensure high-quality customer due diligence and documentation of its findings; when carrying out customer due diligence and transaction monitoring the bank had failed to give sufficient weight to the unusually large, complex, inter-related transactions and failed to verify and document a reasoned judgement regarding legal and economic substance of such inter-related, complex business schemes;

the bank had failed to classify individual customers as shell companies in line with the AML regulatory requirements.

The FCMC concludes that the bank has not established an AML internal control system adequate to its operational risks that would ensure effective enforcement of the AML regulatory requirements and ensure the AML risk management in the Bank.

The explanations by the bank’s management did not provide the FCMC with assurance that the bank had fully understood the nature of irregularities and would change its approach, thereby ensuring the prevention of breaches and adequate functioning of its internal control system. The FCMC therefore concludes that the bank does not recognize the infringements and agrees to make changes to its conclusions only because of the opinion of the FCMC. However, the FCMC expects the bank to ensure compliance with laws not only formally, but by nature in order to address the AML risks.

Signet Bank has to assess its internal control system in the field of AML and improve its functioning and effectiveness. In accordance with the FCMC’s decision the bank must submit to the FCMC an action plan to address the breaches and shortcomings identified.

Signet bank must perform an independent assessment of compliance and efficiency of the bank’s internal control system in the AML area involving a sworn auditor or sworn auditors firm.

At the same time, the FCMC takes note of the progress made by Signet Bank in addressing the shortcomings identified by the FCMC.

The fine of 85 percent of maximum statutory amount has been applied to Signet Bank, i.e. 10 percent of the bank’s total annual turnover. The bank shall pay the fine into the state budget within one month from the date of entry into force of the administrative act, the FCMC said.

Signet Bank board chairman Roberts Idelsons told LETA that the financial watchdog's decision on a fine in addition to the duty to address the shortcomings is a pity. "We are aware however that in the modern financial system even some shortcomings in the internal control system may result in sanctions," he said.

Idelsons said that Signet Bank is constantly improving its activities in relation in the AML area to ensure that they meet the good practice standards, the growing demands and the regulator's expectations.

He said that the watchdog's probe was conducted in late 2018. The bank has taken the regulator's recommendations into account and has performed the necessary steps to address the shortcomings. The bank is constantly investing in development of its IT systems, processes and human resources.

"We wish to underscore that the regulator's decision refers to shortcomings in internal control system, but not to breaches or money laundering cases," said Idelsons.

As reported, Signet Bank closed 2019 with a profit of EUR 744,000, which is 4.4 times more than a year before, according to information released by the bank.

Signet Bank was established in 1992 under the name Latvian Business Bank. Since 2013, when it was acquired by VMHY co-owner Andrey Vdovin, the bank operated under the name of Bank M2M Europe. Its strategy was focused on servicing international high net worth clients. In September 2017, the bank was renamed to Signet Bank as Signet Global Investors Limited, Hansalink and Fin.lv became its principal owners.

At the end of June 2019, Signet Bank was the second smallest bank in Latvia by assets.