FSA fines Abbey National

RNS Number:0679T
Financial Services Authority
10 December 2003

FSA/PN/132/2003
For immediate release
10 December 2003

FSA fines Abbey National companies #2,320,000

The Financial Services Authority (FSA) today fined Abbey National companies a
total of #2,320,000 for serious compliance failings.  Abbey National plc was
fined #2mn for breaches of the FSA's Money Laundering Rules, while Abbey
National Asset Managers Limited (ANAM) was fined #320,000 for systems and
control breaches.  Both cases reflected wider control failings, including
inadequate monitoring of key regulatory risks, across the Abbey National group
over a prolonged period.

Abbey National plc

Andrew Procter, FSA Director of Enforcement, said:

     "The FSA has repeatedly made it clear to the regulated community that it 
     expects all financial firms as part of their compliance regime to establish 
     and maintain strong and effective anti-money laundering procedures.

     "The failure by Abbey National to monitor compliance with FSA Money 
     Laundering Rules demonstrated a marked lack of regard for its regulatory 
     obligations. Abbey National failed to ensure that suspicious activity 
     reports were promptly considered and reported to the National Criminal 
     Intelligence Service and to identify customers adequately.  Both these 
     controls are fundamental to the UK's Anti-Money Laundering regime's 
     effectiveness.   Their failings also reflected the fact that the overall 
     control environment, particularly compliance monitoring, has been weak 
     across the group over a prolonged period.

     "The size of the fine demonstrates that failure by firms to put in place 
     these fundamental systems and controls will be dealt with severely by the 
     FSA and it reflects the importance the FSA attaches to its statutory 
     objective of reducing the chance of regulated firms being used for purposes 
     connected to financial crime.

     "I was, however, pleased to see the personal commitment of Abbey's CEO to
     resolving these cases promptly."

The FSA's investigation revealed weaknesses in Abbey National's anti-money
laundering controls across its retail banking division.  The investigation found
that from December 2001 until April 2003 Abbey National failed to adequately
monitor anti-money laundering (AML) compliance following the introduction of the
FSA's Money Laundering Rules.  The failings included reliance on a system of
self-certification of AML compliance by branches, the lack of AML compliance
monitoring by a central function and the failure to provide key management
information to the Money Laundering Reporting Officer (MLRO) function regarding
this process.  These failings contributed to high rates of non-compliance with
'know your customer' (KYC) requirements which persisted until April 2003.

The FSA's enquiries also revealed that, in respect of customer transactions
carried out or attempted during 2002, Abbey National's MLRO function failed to
ensure that internal suspicious activity reports (SARs) were promptly considered
and reported to NCIS.  This breach extended from February 2002 to October 2003.

The control failings and breaches occurred despite increased regulatory emphasis
on the importance of effective anti-money laundering controls since the
introduction of the FSA's Money Laundering Rules.

In mitigation, Abbey National has devoted considerable resources in taking
prompt and effective remedial action in addressing the issues identified.  As a
result the rate of non-compliance with KYC requirements has reduced
considerably.  Senior management have also taken prompt action to strengthen
Abbey National's central MLRO function and to address the issues surrounding
SARs.  These changes have resulted in a reduction of the internal backlog and
improvements in reporting to NCIS.


The Abbey National Board has affirmed its commitment to deliver on a detailed
and demanding remedial action plan which will ensure that both the AML and wider
control failings are tackled effectively and that a robust compliance regime is
put in place across the Abbey Group. As a result of this commitment, the FSA has
decided not to take formal disciplinary action concerning the wider control
failings.



Abbey National Asset Manager Limited (ANAM)

The FSA has also fined ANAM #320,000 for breaches of FSA Principle 2 and Rules
3.1.1 and 3.2.6 of the FSA's Senior Management Arrangements, Systems and
Controls Sourcebook (SYSC).

The FSA found that ANAM failed to ensure that its systems and controls in
relation to its fund management business complied with the FSA's SYSC Rules
during the period between December 2001 and June 2003.  The investigation
revealed that ANAM repeatedly failed to act with due skill, care and diligence
in addressing compliance shortcomings identified by its divisional compliance
function during this period.  Furthermore the resourcing of the compliance
function was insufficient to maintain adequate compliance oversight which may
have contributed to control failings which manifested themselves in the
misconduct of a senior fund manager.  ANAM was found to have lacked relevant
management information that would have enabled it to identify and address
regulatory risks in the period between December 2001 and June 2003.

Following a comprehensive investigation by ANAM into its dealing procedures the
firm has paid out approximately #300,000 in compensation to clients of the funds
which suffered losses as a result of the senior fund manager's misconduct.

In deciding the level of penalty to be imposed the FSA has taken into account
that ANAM has co-operated fully with the FSA. ANAM has taken effective remedial
action by implementing comprehensive systems and controls in its fund management
business.



NOTES FOR EDITORS

1. The FSA concluded that Abbey National had contravened Rule 3.2.6 of the
FSA's Senior Management Arrangements, Systems & Controls Rules.  Rule 3.2.6
provides that:

     (1) A firm must take reasonable care to establish and maintain effective
         systems and controls for compliance with applicable requirements and 
         standards under the regulatory system and for countering the risk that 
         the firm might be used to further financial crime.

2. The FSA concluded that Abbey National had contravened Rules 3.1.3 and
4.3.2 of the FSA's Money Laundering Rules.  Rule 3.1.3 provides that:

     (1) A relevant firm must take reasonable steps to find out who its client 
         is by obtaining sufficient evidence of the identity of any client who 
         comes into contact with the relevant firm to be able to show that the 
         client is who he claims to be.

Rule 4.3.2 provides that:

         A relevant firm must take reasonable steps to ensure that any report 
         required by ML 4.1.2R(1) (Internal Reporting) is considered by the 
         MLRO (Money Laundering Reporting Officer), or his duly authorised 
         delegate, and that if, having considered the report and any relevant 
         know your business information to which he has sought access, the MLRO, 
         or his duly authorised delegate, suspects that a person has been 
         engaged in money laundering, he reports promptly to NCIS.

3. Documents that can be used to verify a customer's identity - that is,
his or her name and address - are set out in the Joint Money Laundering Steering
Group Guidance Notes and include a valid passport, a driving licence and a
recent utility bill. For businesses, evidence of the identities of the principal
beneficial owners/controllers should generally be obtained as should evidence of
the trading address of the business.

4. Enforcing breaches of the Money Laundering Rules is only one aspect of
the FSA's work in reducing the extent to which regulated firms can be used for
the purpose of money laundering and terrorist financing. The FSA also works with
the financial services industry to develop anti-money laundering initiatives,
share best industry practice and provide training. Recent FSA projects include:

     *  Publishing the results of an FSA review of current practices across a
        number of banks and building societies in the retail banking sector 
        (further details at 
        http://www.fsa.gov.uk/pubs/other/ml_domestic_banking.pdf)

     *  Publishing Discussion Paper 22 in August 2003 on KYC and anti-money
        laundering monitoring.

     *  Issuing with the Treasury & NCIS joint public information materials on
        the reasons for identification.

5. The FSA concluded that Abbey National Asset Managers had contravened
Principle 2 of the FSA's Principles and Rules 3.1.1 and 3.2.6 of the FSA's
Senior Management Arrangements, Systems & Controls Rules.

Principle 2 provides that:
      A firm must conduct its business with due skill, care and diligence.

Rule 3.1.1 provides that:
     (1) A firm must take reasonable care to establish and maintain such systems
         and controls as are appropriate to its business.

Rule 3.2.6 provides that:
     (2) A firm must take reasonable care to establish and maintain effective
         systems and controls for compliance with applicable requirements and 
         standards under the regulatory system and for countering the risk that 
         the firm might be used to further financial crime.

6. Abbey National's registered office is Abbey National House, 2 Triton
Square, Regent's Place, London NW1 3AN.  Abbey National Asset Managers Limited
registered office is 301 Vincent Street, Glasgow G2 5HN.  More information on
Abbey National can be found on its website at the following address: http://
www.abbey.com.

7. Further information about the FSA's anti-money laundering work can be
found on the FSA website at http://www.fsa.gov.uk/what/ml_terrorist.html.

8. Copies of the Final Notice in this case are available on request from
the FSA Press Office.

9. The FSA regulates the financial services industry and has four objectives
under the Financial Services and Markets Act 2000: maintaining market
confidence; promoting public understanding of the financial system; the
protection of consumers; and fighting financial crime.

10. The FSA aims to maintain efficient, orderly and clean financial markets and
help retail consumers achieve a fair deal.




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