Coutts AML penalty – how come?

Coutts private bank, a division of the Royal Bank of Scotland, has been fined £8.75m by the Financial Services Authority (FSA) for not displaying adequate measures to prevent money laundering. After reviewing 103 high-risk customer files the FSA found deficiencies in at least 73 of them.

The bank has received the largest fine of its sort for breaching anti money laundering (AML) rules, after three years of ‘systemic’ problems in handling client affairs vulnerable to corruption because of customers’ political links.

The FSA found, after an industry-wide review in October 2010, that the bank was not conducting robust enough checks, nor were they monitoring relationships with high-risk customers to a satisfactory degree or verifying origins of deposits being made. Therefore, any suspicious funds being laundered through the account were not being highlighted.

The failings displayed by Coutts have been labelled as ‘significant, widespread and unacceptable’ with its conduct falling well below the standards expected. The fine which has been awarded to Coutts demonstrates the severity with which the FSA is regarding anti money laundering and should serve as a sharp reminder to other major players in the industry.

But surely avoidance of such fines is simple? Banks should surely have in place a system with which to manage and track any irregular activities which could highlight money laundering or suspicious behaviour around customer accounts. Inherently manual in part, AML relies largely on clients providing physical evidence of identity. Through automating the processes involved in the manual collection of data, a client can be identified and then linked into an online data provider to perform the necessary checks automatically. The processes, infrastructure and technology are all available, so why was this allowed to happen?

Electronic data management not only brings a joined-up process to AML, but also reduces the time taken to perform previously onerous checks. It turns a time consuming task, prone to error, into a background function taking minutes. Our work in the wealth management space proves that compliance can be joined up and effective.

And as if this time and cost saving wasn’t enough, there is then the small matter of avoiding crippling fines for failing to prevent data misuse, and all at the click of a button or two.

Stamping out business costs?

Ouch! There can’t be many of the day-to-day business staples that suddenly rise by in excess of 30% but that’s what’s happening to the humble stamp. For a standard letter size, first class stamps are to rise from 46p to 60p. and second class stamps from 36p to 50p. Then there’s the uplift for the bigger letters and packets too. Ofcom’s taken the brakes off so we’ll be getting used to postal service charges increasing as Royal Mail seeks to balance its books whilst simultaneously investing in major modernisation.

For those issuing paper invoices, contracts and correspondence or marketing literature then the franking machine will be costing you a lot more this year. For professional firms like accountants this is a particular headache. In these days of social networking, e-commerce and even old-fashioned email the continuing volumes of paper based documents can be a surprise. However, the fact is that post can be a significant cost for some businesses. This is another burden which makes it all the more difficult to keep a lid on costs.

Of course, dealing with documents electronically removes this. Storing and actioning all correspondence, invoices etc via document management solutions is a logical approach. When something simply has to go out by post then it should be the exception rather than the rule, email and e-commerce the norm. Secure portals and digital signing tools further cement the move away from post. We’re delighted that we’re on the cusp of launching a joint initiative to market with accountancy web and content specialists PracticeWEB to enable portal connectivity. Having security and immediate access in the office and for clients and suppliers joins up the way we work, without the inherent delay of post and without bumping up costs 30% at a time.

2012 Budget increases business costs – what else is in store?

Personal storage has been a growing business over the last 10 years. The likes of Big Yellow, Access, Loknstore, Safestore and a plethora of other smaller rivals have grown up to supplement local offerings. Of course, this phenomenon simply augments the existing business  requirement. This is a demand driven not just by spare bits of office furniture, exhibition materials and other detritus but also frequently by compliance with legislation and regulatory need. It’s also feared by paranoia about customer service and risk. We’re talking filing and paper records here – mountains and mountains of it. For many knowledge based businesses keeping records for 6 years and more is just part of day to day operations. For accountants, lawyers, architects, brokers and others there will be paper records which go back for years.

At a time when cash flow is king then it’s just one more piece of aggravation and cost to find that off-site storage will be on the rise. At least that’s what will happen if the Budget announcement to close a loophole which exempts storage from VAT becomes law on 1^st October as planned. Forecasters are already projecting a drop in profits for the big storage outlets. If you have your archives off site then be prepared to pay twice from October – the VAT you can reclaim back of course, but the underlying storage price is also likely to nudge north a little as the suppliers seek to claw back the revenues lost from the personal market.

None of this is an issue for those businesses with the foresight to take on board suitable systems. Document and content management is a core requirement for the professional firm nowadays. It’s not just the tangible enhancement in everyday efficiency, the client service improvements and the peace of mind. They know that they are in good shape when it comes to statutory and regulatory compliance. They get clear competitive advantage. Their firms run better and their costs are reduced. And in October they’ll see just one more advantage accrue.

Social Housing solutions for the smaller Housing Association

It’s easy to think of Housing Associations in terms of the big boys with high stock levels and major infrastructure projects supplied by the big system integrators. Of course it’s a fragmented “industry” with many small HAs. They face the same compliance and regulatory needs as the large players and need to get appropriate bang for their buck too. Getting efficient can sound a little trite. But it belies the fact that massive changes like welfare benefit reform and a dour economic backdrop mean that cost savings simply have to be top of decision makers’ minds.

This month’s Housing Technology includes an article about Shian Housing‘s adoption of Invu. There are approximately 320 small associations, with fewer than 1000 units, registered with the National Housing Federation and working in London. These form the G20 group, one of which is Shian.

Invu solutions have been implemented in many HAs and the trend is positive. Many of these have been in good sized and growing HAs, like Seren, Cosmopolitan, Adactus and Derwent. The solutions have been complex at times and the results hugely positive. We’re delighted to work on these projects and we hope that these customers are enjoying the benefits they set out to achieve - the fact that they are willing to provide great testimonials and case studies is certainly positive. But the Shians of this world show that careful husbandry, very well defined scope and a pragmatic sense of ambition can allow the smaller HAs to share many of these benefits.

Invu is delighted to work with all sizes of HAs. We’re at the NHF Housing Finance Conference and Exhibition at Warwick University and TAI 2012: The Housing Olympics in Cardiff this week. Next week  we’ll be at Hitex in Edinburgh. Come and ask us about Shian and our other customers experiences.

Pritchard's - A Lesson in Compliance

The recent case of Pritchard Stockbrokers using client money for its own expenses highlights the severity with which the FSA is now dealing with organisations that are breaching regulations.

The FSA issued a first supervisory notice to Pritchard, preventing it from taking part in further regulated activities, after being found guilty of using client money for its own expenses. In addition to breaching the golden rule of ring fencing client monies this also put client monies at risk – the firm’s assets were also frozen and clients were informed that Pritchard was no longer working for them.

The regulator said that it had come to the decision as it had ‘serious concerns’ – specifically that Pritchard had failed to arrange ‘adequate protection’ for client’s assets when it was responsible for them.

The impact for Pritchard’s is severe - all retail clients’ stock assets transferred to W. H. Ireland  and cash assets to  Reyker Securities plc, whilst Pritchards itself has now entered administration. W. H . Ireland’s £500,000 investment secures 8,000 new clients with non-cash assets of £400 million. This increases its private-client stockbroking client numbers by c.50% and total assets under management by c.25%. The cost of compliance cannot be under-estimated, nor, perhaps the potential benefits.

Pritchard’s actions raise several questions – not least how the stockbroker could go unnoticed using client money for internal expenses. This highlights the necessity for internal systems and processes which would record or flag abnormal activities regarding the movement of funds and fraudulent activity.

It also highlights how businesses at risk of legislation and compliance need to remain on ‘their toes’. Legislation doesn't generally go away; if anything the trend is for increased regulation  and firms must ensure they have sufficient processes in place to establish and maintain compliance. Failure to do so will inevitably result in warnings, as highlighted in the case of Pritchard’s, that have the potential to evolve into fatal penalties. 

RDR – how ready are you?

While Retail Distribution Review (RDR) will not be implemented until January 2013, both providers and financial advisers need to give serious thought to the implications of the changing regulatory climate. This new regulatory model is designed to improve confidence and trust in the financial services market with greater transparency to support the new fee based approach. At the heart of RDR is good client information: IFAs need not only to record and store all client information, including growing volumes of email based information, in an efficient manner but, critically, be able to rapidly search all those documents to respond to client demands.

So, will the RDR result in a major fall out in the industry? Are the demands for information transparency required to build trust and client confidence likely to result in massive consolidation by creating cost to serve that is simply unsustainable for smaller organisations in what will become a far more cost sensitive and competitive marketplace? Or could the RDR be an opportunity for switched on IFAs to drive through cultural change and exploit real time access to client information delivered by Document Management Systems (DMS) to reduce costs, automate RDR compliance and, critically, improve competitive position.

It is, of course, possible to meet the information retention requirements laid down by the FSA with a manual approach and strong processes for the storing of both paper based and electronic information, but it is hardly effective. And it is impossible to deliver the level of service that will be required when staff are spending so much of their working day simply searching for client information.

The only way that IFAs are going to be able to survive and compete in the new regulatory climate will be through far more effective and automated information storage and retrieval processes. Whilst growing volumes of client information are now provided via email – both secure and insecure – email remains unmanaged within the majority of IFA Businesses.

If the industry is to avoid major consolidation and widespread loss of individual IFAs, there is a need to achieve compliance to RDR without incurring an unsustainable operational overhead. More critically, IFAs need to change working practices to create a cost effective and competitive business model that improves productivity and minimises the administrative requirement.  Organisations that leverage DMS to store and retain all client information in a single, searchable resource will not only achieve RDR compliance but also reduce costs and create a far more scalable business model in an increasingly cost sensitive market. 

http://www.ifaonline.co.uk/professional-adviser/feature/2161783/tamper-proofing-fsa-bay

How are you handling electronic discovery for your documents for FATCA?

The U.S Foreign Account Tax Compliance Act (FATCA) comes into effect on January 1^st 2013 to combat offshore tax abuse. Those caught by FATCA may be swiped with a 30% withholding tax on U.S investment income. For understatements on undisclosed foreign (ie non US) assets there’s a further 10% to add to this.

Foreign entities can avoid FATCA’s swingeing withholding tax as they enter the FATCA regime – after entering into a binding agreement with the IRS to identify U.S persons and to report certain information about them to the IRS. This information is then used to identify potential instances of under-reporting as well as fraud.

But how is such information collected? FFIs must retain all paper and electronic documentary evidence establishing the identity of account holders for 10 years. As is to be expected records must be accurate, up to date, consistent, retained for specific periods of time, and readily available for certification and auditing purposes. And this latter point is the key – all documents must be electronically searchable. The IRS will want to be able to run some sophisticated data collection, recognition and analysis tools over high volumes of data. No more hefty physical files of information or, if you do persist with these, then they will need to be digitised. 

Because of these requirements firms will need to adapt their systems and operational processes of January 2013 – this is a significant undertaking for many organisations, least of all those with multiple customer platforms. FATCA will be applicable for all types of financial institutions – the operational system needs to be in a position to detect U.S clients at the moment when an account is opened, as well as the entire lifecycle of a client through monitoring.

The efforts needed to fulfil these obligations can be substantial for a financial institution and can require specialist knowledge and assistance – knowledge which can be aided by a supplier of such a system with an understanding of the Act itself. Some firms are even taking the view that they will no longer broker for US citizens.

Getting parochial for a moment, it is essential that organisations caught by FATCA review all their internal systems. Much of this should be in train already, but the disclosure elements and, in particular, electronic searchability/ discovery means that how firms handle, store and retrieve documents will be at the heart of this.  Discussions with a document or content management provider should be high on the immediate agenda. A good provider will be able to call on a strong understanding the act, and be able to guide the organisation through the requirements and suggest any changes which may be needed to current systems in order to meet FATCA and other compliance requirements.