Public statement concerning the imposition of a civil penalty under the Anti-Money Laundering & Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 in[...]

PUBLIC STATEMENT CONCERNING THE IMPOSITION OF A CIVIL PENALTY UNDER THE ANTI-MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (CIVIL PENALTIES) REGULATIONS 2019

Capital International Limited ('CIL')

1. Action

1.1 The Isle of Man Financial Services Authority (the "Authority") makes this public statement in accordance with powers conferred on it under section 13 of the Financial Services Act 2008 (the "Act") and under regulation 5(7) of the Anti-Money Laundering and Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 (the "Regulations").

1.2 The making of such public statement supports the Authority's regulatory objectives of, among other things, securing an appropriate degree of protection for customers of persons carrying on a regulated activity, reducing financial crime and maintaining confidence in the Isle of Man's financial services industry.

1.3 CIL was selected to be part of the Foreign Politically Exposed Persons ("FPEP") thematic project undertaken by the AML/CFT Division of the Authority. The FPEP inspection (during April 2022) of CIL by the Authority under section 15 of the Act (the "Inspection"), identified certain instances of historic contravention of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 (the "Code"). The Authority has deemed it proportionate, reasonable and appropriate in all the circumstances, that CIL be required to pay a civil penalty imposed under the Regulations.

1.4 The Authority acknowledges the constructive dialogue between CIL and the Authority, and gives credit for those pre-identified actions and the programme of remediation completed by CIL management prior to, during and after the FPEP thematic inspection.

1.5 The civil penalty is the sum of £170,851, which is discounted by 30% to £119,596 (the "Civil Penalty"). The level of the Civil Penalty reflects the fact that CIL co-operated fully with the Authority and agreed settlement.

1.6 As with all discretionary civil penalties issued by the Authority, the level of the Civil Penalty is calculated as a percentage of CIL's income in accordance with the Regulations. The absolute amount of the Civil Penalty relative to the absolute amount of other civil penalties that have been imposed by the Authority previously is not necessarily indicative of the relative seriousness of the contraventions identified in each matter - the level of a civil penalty (calculated on a percentage basis) is determined each time on the facts of a particular matter and regard is had by the Authority to the level and the percentage of civil penalties imposed in other matters.

1.7 Noting the scope of the inspection (as set out in paragraph 1.3), it is important to highlight that the historic contraventions identified were limited to those under the Code. It is also noted by the Authority, that there were significant mitigating factors in this case, and this has been taken into consideration in the level of Civil Penalty being applied. CIL completed a programme of remediation prior to, during and after the FPEP thematic inspection.

2. Background

2.1 CIL has been licensed with the Authority to undertake the regulated activities of Class 2 - Investment Business and a Class 3 - Services to Collective Investment Schemes since 5 August 1996.

2.2 The Inspection was conducted by the Authority in April 2022, and this identified contraventions of the Code by CIL in certain FPEP cases (the "Contraventions").

2.3 The final inspection report was issued to CIL by the Authority on 18 August 2022.

2.4 CIL has engaged positively with the Authority throughout this matter in a timely and constructive manner.

3. Key Findings from the Inspection Report

Contraventions of the Code identified by the Inspection included:

3.1 The procedures and controls in place at the time of the inspection did not enable CIL to fully demonstrate management and mitigation of all risks as required by the Code. (Paragraph 4(1)(a)(i) of the Code).

3.2 In certain FPEP files reviewed, the Customer Risk Assessments did not contain the expected level of detail on the assessment of certain risk factors. (Paragraph 6(3) of the Code).

3.3 As a consequence of 3.2 the Business Risk Assessment did not have full regard to the Customer Risk Assessment, specifically covering the risk posed by foreign PEPs. (Paragraph 5 (3) (f) of the Code).

3.4 In certain FPEP cases reviewed, the source of funds and / or source of wealth information and documentation were not in full compliance with the requirements. (Paragraph 8(3)(e) of the Code).

3.5 The ongoing monitoring process of CIL's FPEPs was not fully effective in certain circumstances. (Paragraph 14 (4) & 13 (1) of the Code).

4. Wider Learning Points for Industry following the FPEP Thematic Project

4.1 Compliance with the Code is a legal requirement; the Authority is committed to taking appropriate and proportionate action to address contraventions of the Code.

4.2 The higher ML/FT risks posed by business relationships involving FPEPs, who are considered to be more exposed to the risk of bribery and corruption, demonstrates the increased importance of on-boarding processes including appropriate sign off, and sufficiently establishing 'Source of Funds' / 'Source of Wealth'. The ineffectiveness of these controls will also affect a relevant person's ability to conduct effective and appropriate monitoring, including scrutiny of transactions, which in turn may result in unusual or suspicious activity not being identified in the appropriate circumstances. Without the appropriate effective procedures and controls being in place, or not being operated adequately, a relevant person will be unable to manage and mitigate the identified risks of ML/FT and conduct the business utilising a risk-based approach as required by the Code.

4.3 There are a number of powers available to the Authority to address identified instances of non-compliance with the Code. The Authority's powers include, but are not limited to, the issuance of a direction and / or public statement as well as the imposition of civil penalties or the commencement of criminal proceedings under the relevant legislation. The circumstances and the nature of an entity's non-compliance with the Code will determine the action(s) taken by the Authority.

4.4 Active engagement and cooperation with the Authority provides the best possible opportunity to resolve matters in a timely and constructive manner and, where appropriate, to minimise the likelihood of the Authority taking further action in relation to instances of non-compliance with the Code.

4.5 The Authority will publish details of ongoing and concluded matters when it is in the public interest to do so.