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Investment Bank Fined by FCA for Failing with Due Diligence Requirements

Richard Marley
May 07, 2021
2 minutes read
165

An Investment Bank in London, Sapien Captial, has been penalised by the financial regulator, Financial Conduct Authority, with a fine of up to £178,000 after it failed to comply with proper due diligence requirements. It is alleged that the investment bank was likely playing a part in financial crime.

The boutique investment bank has failed to properly place systems to find and eliminate the financial risks. It did not take any measures from being used by the fraudsters for illegally trading and laundering money. It did not take any measures to prevent money laundering and illegal trading by the Solo Group.

According to FCA, “The Solo Group trading was characterised by what appeared to be a circular pattern of extremely high-value trades undertaken to avoid the normal need for payments and delivery of securities in the settlement process.”

The way the trades were carried out by the Solo Group and its clients indicated financial crime and they were undertaken to develop an audit trail to hold back tax claims in Denmark and Belgium. Sapien carried out OTC equity trade of £2.5bn equities in Denmark and a value of £3.8bn in equities in Belgium.

The Financial Conduct Authority did not find any proof of shift of ownership of the shares that Solo clients traded. They did not even find the trade shares and settlement of the Solo Group.

Mark Steward, director of enforcement and market oversight at the FCA, said: “These transactions ran money laundering and other financial crime risks which Sapien incompetently failed to see. The FCA expects firms have systems and controls that test the purpose and legitimacy of transactions, reflecting scepticism and alertness to the risk of money laundering and financial crime, and failures here constitute serious misconduct.”

According to the FCA, this trading of Solo Group can be related to the cum-ex trading. The cum-ex scandal resulted in the loss of billions of euros for Germany, Denmark, France, and Italy. The scandal led to many raids, arrests, and court cases and dragged down many of the big names in the financial world.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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The State of KYC/AML Compliance in Commonwealth Independent States (CIS) Region
Commonwealth Independent States (CIS) is among the largest regions of the world with numerous opportunities for businesses. However, the crime rate in the region is significantly high, so CIS holds many threats for the corporate sector as well. Different reports reveal that companies higher risks associated with their customer onboarding process. Not paying attention to improving the procedures and ineffectively complying with the regulations may lead to high penalties or total seizure of business activities. Given the high ratio of fraudulent activities and rigid KYC/AML requirements, countries in this region have to structure top-notch customer onboarding processes. Otherwise, fines will continue to increase.

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Complying with the AML and data protection regulations is mandatory for every business operating in the CIS region. However, the degree of compliance depends upon the region of registration of businesses. If a company is registered in the CIS region, the regulatory requirements are significantly higher tha companies registered in any other part of the world.

For international businesses, it may be convenient to develop a single onboarding process. However, companies have to consider CIS-specific laws before stepping into the region with the same procedure. Otherwise, this will lead to hefty non-violation penalties for not complying with the CIS regulations. For example, Russian authorities have the authority to restrict business operations as a result of data breaches. In some cases, fines may be imposed of up to 18 m RUB (approximately 240,000 dollars).

Regional Specifics Hindering the Customer Onboarding Process

Certain regional issues also become a problem for businesses while developing the perfect customer onboarding process. Here are the top five regional specifics that demand utmost attention from the relevant authorities:

Politics

Screening of this region’s customers against sanction lists must be a priority for businesses due to the large number of blacklisted entities that launder money abroad. The FinCEN files also revealed that wealthy officials from post-Soviet states laundered billions through major banks worldwide. Andriy Klyuyev, advisor to the former Ukrainian President, was also among them. The guilty was sanctioned in the EU in 2014 but continued laundering money through American banks until 2015.

High Risk of Fraud

The CIS region demands robust KYC checks due to the high rate of fraud in the region. The largest financial companies are not safe from perpetrators. Last year, a Moldovan politician was probed for stealing USD 1 billion from three largest banks in Moldova.

Document Language

Do you know a majority of the CIS states use non-Latin writing systems like the Armenian scripts? During verification, extracting and processing data from identity documents takes most of the time and effort. Therefore, businesses in the region need an AI-powered Optical Character Recognition (OCR) software that can extract data and convert it into non-Latin or machine-readable language in no time.

Data Protection Rules

Businesses must store all the information of end-users on servers in Uzbekistan, Kazakhstan and Russia. For instance, a company in the United States onboarding customers from Russia cannot store information in the US.

Limited AML Coverage

AML service providers in this region have limited coverage since they do not have access to local databases. To ensure secure customer onboarding, businesses must ensure their vendor has access to all databases.

Developing the Perfect Onboarding Process with Shufti Pro

Given all the challenges and concerns in the customer onboarding process, Shufti Pro’s identity verification solutions help businesses onboard legitimate entities only. Let’s take a look at how the CIS region can benefit from the globally acclaimed customer onboarding process.

Document Verification

The government-issued identity documents are verified for manipulation. The system checks the name, number, blood group, hair colour, residence, place of birth, citizenship, tax number, health number, birth certificate number, and employment details. The document is validated for forgery and tampering in three easy steps; capture, extract, and screen.

Shufti Pro’s document verification supports 3000+ document types in more than 150 languages and employs AI-backed OCR software to extract data from the ID documents.

Face Verification

To ensure the live presence of the customer and prevent spoof attacks, face verification checks are performed. The customer uploads a selfie during verification which is matched with the image on the ID document uploaded earlier. Liveness detection, 3D mapping, microexpression analysis, and skin texture analysis are some checks performed for a foolproof face verification.

Background Checks

All customers are screened against 1700+ global watchlists including sanctions and PEPs. Background screening identifies high-risk entities enabling businesses to carry out necessary due diligence checks.

Key Takeaways

To sum up, the Commonwealth of Independent States (CIS) region has the highest rate of fraud, as compared to other parts of the world. From sophisticated fraud techniques to regulatory limitations for overseas businesses, there are several reasons behind the exponentially high fraud statistics. To make sure these activities do not increase, the customer onboarding process in every organisation must be robust enough to filter bad actors before they become a problem. Considering the challenges in this region, Shufti Pro’s globally acclaimed customer onboarding process is what companies need for seamless operations in Commonwealth of Independent States. AI-driven document verification, face verification, and anti-money laundering (AML) screening assists in legitimate customer onboarding.

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Investment Bank Fined by FCA for Failing with Due Diligence Requirements

A Glimpse of the Regulatory Landscape in CIS

Regional Specifics Hindering the Customer Onboarding Process

Politics

High Risk of Fraud

Document Language

Data Protection Rules

Limited AML Coverage

Developing the Perfect Onboarding Process with Shufti Pro

Document Verification

Face Verification

Background Checks

Key Takeaways

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.

Investment Bank Fined by FCA for Failing with Due Diligence Requirements

What is CIS?

A Glimpse of the Regulatory Landscape in CIS

Regional Specifics Hindering the Customer Onboarding Process

Politics

High Risk of Fraud

Document Language

Data Protection Rules

Limited AML Coverage

Developing the Perfect Onboarding Process with Shufti Pro

Document Verification

Face Verification

Background Checks

Key Takeaways

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.