The Isle of Man Financial Services Authority has applied a civil penalty of £535,185, discounted from £764,550, against Nedbank Private Wealth Limited over failures related to anti-money laundering regulations.

The action comes after the regulator followed up on statistical anomolies spotted in the firm's 2018 returns.

This, the regulator stated "indicated a high proportion of foreign politically exposed persons ("FPEPs")."

"In light of the foregoing, NPW was selected to be part of the FPEP thematic project undertaken by the AML/CFT Division of the Authority. The FPEP inspection of NPW by the Authority under section 15 of the Act (the "Inspection"), identified a number of contraventions of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 (the "Code"), the Authority has deemed it appropriate, necessary and proportionate, in all the circumstances, that NPW be required to pay a civil penalty imposed under the Regulations."

The regulator went on to state: "The Regulations allow penalties to be imposed at two levels depending on the perceived seriousness of the contraventions of the Code identified. Penalties imposed equate to a percentage of the relevant person's income (as such terms are defined in the Regulations). In this instance, the Authority has deemed that the contraventions identified, merit that a penalty be in the Level 2 penalty bracket."

"The Authority acknowledges the constructive dialogue between NPW and the Authority, which is ongoing, and gives credit for those pre-identified actions and the programme of work already underway agreed by NPW management prior to the FPEP thematic inspection."

The regulator stressed that there were mitigating circumstances in the case, and that NPW had responded promptly once the issues were identified.

"Noting the scope of the inspection...it is important to highlight that the 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. NPW committed to prompt and effective remedial action and has already taken substantial steps to address matters."

Key findings of the regulator's report into which rules were broken include:

  • The documented customer risk assessments for FPEPs did not contain the prescribed level of detail on certain aspects. As a result, NPW couldn't consistently evidence that all relevant risk factors were considered (paragraph 6 of the Code)
  • In certain FPEP cases, there was not sufficient evidence of recorded Code-compliant customer due diligence and enhanced due diligence (paragraphs 8 and 15 of the Code)
  • In certain FPEP cases, source of funds or source of wealth were not adequately documented by NPW (paragraphs 8, 14 and 15 of the Code)
  • The ongoing monitoring processes of NPW for FPEPs were not fully effective in certain circumstances (paragraphs 13, 14 and 15 of the Code)
  • The NPW policies and procedures did not fully enable NPW to manage and mitigate the ML/FT risks in relation to FPEPs (paragraph 4 of the Code).

As for wider learnings for the industry, the regulator noted that: "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, sufficiently establishing ‘Source of Funds'/‘Source of Wealth', conducting effective ‘Enhanced Customer Due Diligence' and enhanced ongoing monitoring."