Gatehouse Bank was fined $1.77 million for poor customer due diligence

The UK Financial Conduct Authority (FCA) fined Gatehouse Bank 1.58 million pounds (US $1.77 million) for failing to resolve "serious weaknesses" in anti-money laundering (AML) procedures performed on customers who faced a higher risk of committing financial crime.

Gatehouse failed to complete sufficient due diligence on customers situated in countries recognised to have a higher risk of money laundering and terrorism financing, as well as on customers categorised as politically exposed persons (PEPs), according to a news statement issued by the FCA on Friday.

The bank violated provisions of the United Kingdom's Money Laundering Regulations 2007 by failing to conduct adequate due diligence to verify the identity of its customers or scrutinise the source of their funds or wealth; failing to conduct enhanced due diligence on customers living in high-risk countries or who were PEPs; failing to adequately monitor customers to ensure due diligence information was updated; and failing to have adequate internal controls to rectify the situation and inadequate comms.

The FCA uncovered difficulties with Gatehouse's customer due diligence in Kuwait, where the company collected $62 million in aggregated client funds over two years through a Kuwaiti company "without appropriately assessing the funds for financial crime risks," according to the regulator. Because it did not have direct ties with the consumers, Gatehouse depended on the corporation to acquire information for AML reasons.

The FCA stated in its judgement notice that $44.65 million of the $62 million handled by Gatehouse through the firm came from as many as 26 PEP investors.

“This example illustrates the risks of failing to have proper systems and controls,” the FCA said.

According to its website, Gatehouse touts itself as a Shariah-compliant bank that is "open, fair, and socially responsible." The bank specialised in offering Shariah-compliant investments in UK and US real estate to investors, Shariah-compliant financing for real estate transactions, and banking and wealth management services to its customers at the time of the infractions, according to the FCA.

Compliance considerations: According to the regulator, problems with the bank's internal controls involving AML regulations stretch back to 2013, although no action was taken until more than a year later. Even still, the FCA's notice stated that the actions taken were insufficient.

Gatehouse's front-line managers began collecting additional information about the bank's customers in late 2016. Until then, Gatehouse's policies and processes provided insufficient practical direction on how to determine a customer's source of wealth or assets. Front-line employees were unaware of the bank's due diligence duties and responsibilities.

According to the FCA, the bank's compliance unit has been under-resourced since at least 2016.

Gatehouse response: “We accept the FCA outcome and can now draw a line under this old issue dating from 2014 to 2017,” a Gatehouse spokesperson said in an emailed statement. “The team has fully cooperated with the regulator and been engaged throughout the process. A thorough review during this period identified no cases of money laundering.

“The current executive team joined Gatehouse in 2017 in part to remediate this issue but also to develop a new retail strategy for the bank supporting homebuyers, landlords, and savers. Over the last five years, the bank has invested significantly in financial crime control capabilities to ensure we operate to the highest industry standards.”

By fLEXI tEAM