Lloyds Bank Corporate Markets fined almost half a million by Jersey regulator

Lloyds Bank Corporate Markets Plc, Jersey Branch (LBCMJ) has been issued with a £498,000.00 civil financial penalty from the Jersey Financial Services Commission (JFSC) for breaching its regulatory requirements in relation to one correspondent banking relationship.

For a protracted period LBCMJ failed to adequately identify the correspondent banking relationship and apply appropriate AML/CFT systems and controls.

LBCMJ were found to have treated the relevant relationship as a normal commercial customer. A correspondent banking relationship may present financial crime risk factors. The JFSC accordingly places great importance on registered persons identifying correspondent banking relationships and ensuring that any higher risk factors are appropriately assessed and mitigated, with effective systems and controls in place.

What is correspondent banking? It is the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). If not governed appropriately, correspondent banking presents a number of financial crime risks which may be exploited. The correspondent bank typically has no direct relationship with the underlying parties to a transaction and is therefore not in a position to verify their identities or conduct due diligence.

Jill Britton, JFSC Director General commented: “This penalty is levied following LBCMJ’s breaches of the regulatory and AML/CFT
regime in regard to its one correspondent banking relationship.

“LBCMJ failed to identify the correspondent banking relationship over a protracted period. It consequently failed to put in place appropriate systems and controls for the activity and did not appropriately assess and mitigate any higher risk factors arising. LBCMJ was, therefore, left exposed to an increased risk of financial crime occurring.

“Whilst the nature of this correspondent banking activity did not present the highest risks typically associated with correspondent banking relationships, AML/CFT failures can undermine the integrity and stability of Jersey’s financial services industry. Registered persons must ensure they have effective systems and controls across their business activities to prevent and detect financial crime.

“The JFSC took account of LBCMJ’s strong compliance record prior to this matter, its remediation of the issues and its full co-operation in this process. LBCMJ no longer provides any correspondent banking services.”

Alasdair Gardner (pictured), LBCMJ CEO commented: “We accept the JFSC’s findings, recognising that not fully adhering to the regulations relating to managing the correspondent banking relationship was not acceptable.

“The breaches related to one customer relationship with another Jersey financial institution. While the breaches exposed ourselves to increased risks of financial crime, we conducted our own internal review and did not identify any financial crime as having occurred or any customer losses from the matters identified.

“We are pleased that the JFSC has also acknowledged our strong compliance record prior to this matter. The JFSC also recognised our full co-operation with their process.”

Click here to read the JFSC public statement outlining the findings of its case.