Public statement concerning the imposition of a civil penalty under the Anti-Money Laundering & Countering the Financing of Terrorism (Civil Penalties) Regulations 2019 in respect of Nedbank Private Wealth Limited

Published on: 18 December 2023

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 Nedbank Private Wealth Limited's (“NPW”) 2018 statistical return, submitted to the Authority under the Act, 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.

1.4 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.

1.5 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.

1.6 The civil penalty is the sum of £764,550, which is discounted by 30% to £535,185 (the “Civil Penalty”).

1.7 As with all discretionary civil penalties issued by the Authority, the level of the Civil Penalty is calculated as a percentage of NPW’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.

1.8 The level of the Civil Penalty reflects the fact that NPW co-operated fully with the Authority and agreed settlement at an early stage.

1.9 Noting the scope of the inspection (as set out in paragraph 1.3), 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.

2. Background

2.1 NPW has been licensed with the Authority to undertake the regulated activities of Class 1(1) – Deposit Taking, Class 2 – Investment Business and a Class 3 – Services to Collective Investment Schemes since being incorporated in 1987.

2.2 The Inspection was conducted by the Authority in May 2022 and this identified a number of contraventions of the Code by NPW across its FPEP client base (the “Contraventions”).

2.3 The final inspection report was issued to NPW by the Authority on 19 September 2022.

2.4 NPW has engaged promptly and 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:

- 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); and
- 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).

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, sufficiently establishing ‘Source of Funds’/‘Source of Wealth’, conducting effective ‘Enhanced Customer Due Diligence’ and enhanced ongoing monitoring. The absence, or 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 particular 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.