Trust company taken to task by regulator over "significant" failings

Tuesday 03 January 2023

A Jersey-based trust company which had “inadequate” procedures for identifying individuals at greater risk of involvement in bribery and corruption – and rated one risky client as “low risk” for more than a decade - has agreed to settle with the regulator after "significant and material" compliance failings were uncovered.

An on-site examination of Lutea Holdings Limited was undertaken in 2019 by the Jersey Financial Services Commission following concerns over the company's compliance with financial regulations.

When this examination identified "serious deficiencies", Lutea was placed under full investigation in 2020.

The JFSC has now confirmed that it has settled with the business, but did not provide details of the settlement.

In a public statement, the JFSC said its investigation revealed that "between 2018 and 2021, Lutea failed to organise and control its affairs effectively for the proper performance of its business activities and did not operate adequate risk management systems."

Pictured: Lutea Holdings Limited have agreed to settle with the JFSC for significant and material breaches of regulatory requirements.

As a result of "systemic deficiencies in Lutea's corporate governance and internal systems and controls", the company was "vulnerable" to significant Money Laundering and Terrorism Financing risk. As a result, the company was found to "pose an unacceptable risk to the integrity and stability of Jersey's financial services industry."

Specifically, the investigation found that Lutea had an inadequate and out of date Business Risk Assessment and Strategy and lacked a formal strategy to counter money laundering and terrorism financing. The report also identified "limited ad-hoc compliance monitoring", with compliance reports lacking "sufficient detail and content" and a "lack of quantitive data, presented in a coherent manner." 

Lutea was found to have inadequate Enhanced Due Diligence procedures, with no policy in place for the identification of politically exposed people (PEP's); that is, a person who has been entrusted with a prominent public function and therefore a person presenting a higher risk for potential involvement in bribery and corruption. 

Pictured: Lutea had no policy in place for the identification of political exposed people who present a higher risk for potential involvement in bribery and corruption. 

Moreover, the JFSC identified issues with Lutea's customer risk assessments. For example, one customer was rated as low risk for over 10 years, despite the presence of high risk factors and, in another case, two customer risk assessments conducted in 2018 failed to consider a customers connection to high risk jurisdictions and activities. 

The JFSC also found that one customer risk assessment "stated there was no negative news and/or litigation despite the periodic review performed at the same time identifying beneficiaries that had been fined by tax authorities for falsifying records."

Lutea's customer record keeping was seen to be "very poor" with records "not kept in an adequate, orderly, or up to date manner."

Lutea reportedly lacked a central storage system, and directors regularly stored customer records in their own personal folders. 

The JFSC's investigation concluded that the root of the problem lay with Lutea’s board of directors. According to the JFSC, the board "was ineffective, lacked awareness of regulatory requirements and engendered an organisational culture without due regard for compliance."

The board was mostly appointed internally, resulting in a "lack of diversity of skillset in its composition", with new board members receiving no formal induction and no personal development training.

As a result, the board was said to have "had insufficient understanding of requirements and best practice in governance, risk and compliance matters." 

Kerry Petulla, Executive Director of Enforcement for the JFSC, commented: “The fight against financial crime is a priority for the JFSC.

"We expect businesses to maintain robust corporate governance arrangements and AML/CFT [Anti-money laundering/countering the financing of terrorism] systems and controls.

"In this case, the Lutea board was found to be ineffective and failed to promote an internal culture of compliance.”