Compliance Updater - September 2020

A summary of key compliance stories around the globe in September.

1. More problems for EY over Wirecard.
2. Consumers still confused by FCA rules.
3. Yorkshire property developer settles with NCA over unexplained wealth.
4. UK FCA bans crypto derivatives sales to retail customers.
5. Danske axes staff in wake of money laundering scandal.
6. KPMG revealed as auditor of fund used in suspicious Wirecard deals.
7. Deutsche fined by German prosecutors for failing to report suspicions.
8. Hong Kong hedge fund fined by UK’s FCA for failing to disclose shorts.
9. BA’s data breach penalty massively reduced.
10. Austrac investigating casino operator over AML and CTF.
11. Goldman pleads guilty to bribery charge and reaches $2.9bn settlement.
12. Amigo Loans enters into a Vreq with the UK’s FCA.
13. Dangers highlighted for financial services post Brexit.

More problems for EY over Wirecard.
It emerged that a whistleblower at EY flagged a potential fraud at Wirecard four years before the German payment processor collapsed. The auditor continued to sign off on the accounts without reservation. The whistleblower raised a potential fraud and an attempt to bribe EY staff at Wirecard in India. EY maintains that the allegation was investigated.

Consumers still confused by FCA rules.
The interim Chief Executive at the UK’s Financial Conduct Authority (FCA) Chris Woolard admitted that consumers remained confused about what the regulator can and cannot police, and said it was key that the FCA’s consumer protection role was clarified.

Yorkshire property developer settles with NCA over unexplained wealth.
The UK’s National Crime Agency (NCA) has agreed a settlement with Mansoor Hussain, a Yorkshire property developer, over his unexplained wealth. The NCA issued an unexplained wealth order (UWO) against Mr Hussain alleging that he had links with criminal gangs, reaching an out of court settlement that sees him hand over forty-five properties, four parcels of land, £600k in cash and other assets. The combined value is £9.8m. The NCA concluded it could not pursue criminal charges as much of the funding went back decades and Mr Hussain had no criminal convictions. The UWO is one of four issued by the NCA to date – two others are ongoing, and one has been rejected by the courts.

UK FCA bans crypto derivatives sales to retail customers.
The UK’s FCA announced it will ban the sales of cryptocurrency-related derivatives to retail customers from 6 January 2021. The products impacted include contracts for difference and exchange traded notes linked to cryptocurrencies like Bitcoin. The FCA cited that such products were “ill-suited for retail consumers due to the harm they pose”, and that the underlying assets could be “extremely” volatile and had “no reliable basis for valuation”. The FCA estimated that the ban will save retail investors about £53m a year in losses and fees.

Danske axes staff in wake of money laundering scandal.
Denmark’s Danske Bank is cutting one-thousand six-hundred jobs as it grapples with the consequences of a €200bn money laundering scandal surrounding its former Estonian branch. Danske is still waiting for news from a US criminal investigation.

KPMG revealed as auditor of fund used in suspicious Wirecard deals.
KPMG, the firm that provided the special audit that precipitated the collapse of Wirecard and highlighted the shortcomings of EY as auditor of the German payment processor, was revealed to be the auditor of a Mauritius fund that was also implicated in the scandal. The fund included secret stakes held by Wirecard senior managers and sold three Indian companies to Wirecard for €340m just weeks after buying them for a fraction of that amount.

Deutsche fined by German prosecutors for failing to report suspicions.
As one of the correspondent banks to Danske Bank’s Estonian branch, Deutsche processed up to eighty per cent of potentially suspicious transactions in the period between 2007 and 2015. Frankfurt prosecutors found that Deutsche was not aiding and abetting money laundering but failed to report suspicions on time. Six-hundred and twenty-seven cases were involved and Deutsche was fined between €12,500 and €30,000 for each.

Hong Kong hedge fund fined by UK’s FCA for failing to disclose shorts.
A Hong Kong based hedge fund – Asia Research and Capital Management (ARCM) – failed to disclose large short positions in UK-listed Premier Oil over more than two years. Mistakenly thinking short selling disclosure was not required for derivative positions, ARCM was fined £873m by the UK’s FCA for failing to make one-hundred and fifty-five notifications to the regulator and one-hundred and fifty-three disclosures to the public.

BA’s data breach penalty massively reduced.
British Airways fine for breaching the data protection rules introduced under the EU’s GDPR was revised from £183m to just £20m. The fine, from the UK’s Information Commissioner’s Office, was for inadequate protection measures that resulted in personal and financial details of more than four-hundred thousand customers being exposed in 2018. The reduction in the amount reflected both improvement in data protection measures at BA and the financial consequences on the airline from the Covid 19 pandemic.

Austrac investigating casino operator over AML and CTF.
The Australian financial crime regulator Austrac is investigating listed casino operator Crown Resorts over potential breaches in anti-money laundering and counter-terrorist financing rules. It appears that the investigation is centred on managing customers that are high-risk and politically exposed.

Goldman pleads guilty to bribery charge and reaches $2.9bn settlement.
The Malaysian unit of Goldman Sachs pleaded guilty to a bribery charge and the bank agreed a $2.9bn global settlement over the scandal involving 1MDB. Goldman was punished for ignoring red flags over the multi-billion dollar fundraising it arranged for state fund 1 Malaysia Development Berhad (1MDB). Goldman’s settlement with the US Department of Justice agreed $2.3bn in fines and a forfeiture of $600m in fees. The bank will also enter into a three-year deferred prosecution agreement.

Amigo Loans enters into a Vreq with the UK’s FCA.
Subprime lender Amigo Loans has entered into an asset voluntary requirement (Vreq) with UK regulator the FCA that requires the FCA’s prior approval to make discretionary payments to directors and dividends to shareholders. The Vreq follows a period a management upheaval after criticism surrounding the mishandling of complaints.

Dangers highlighted for financial services post Brexit.
The head of the City of London Corporation’s policy and resources committee highlighted that trade terms that Japan has secured for its financial services sector with the EU and the UK was a “model”. The deal includes ‘equivalence’ rights that allow Japanese financial services companies to serve EU customers as long as Japan’s regulation is equivalent to that of the EU. A deal for the UK that is at least as ambitious is hoped for, but yet to be agreed.