Lloyds’ Jersey investment banking arm fined £500k

Friday 12 August 2022

The finance industry watchdog has slapped the Jersey investment banking arm of Lloyds Bank with a nearly £500,000 fine for a failure that left them at risk of financial crime.

Lloyds Bank Corporate Markets’ fine for the breach of anti-money laundering and counter-terrorism financing rules could have been nearly one million, but the regulator gave a 50% discount because the firm “agreed to settle at an early stage of the process.”

The finance industry watchdog has slapped the investment banking arm of Lloyds Bank in Jersey with a nearly £500,000 fine for breaking the anti-money laundering code.

Lloyds Bank Corporate Markets' fine could have been around one million, but the regulator gave a 50% discount because the firm "agreed to settle at an early stage of the process."

The Jersey Financial Services Commission said the move was "in line with its guiding principles": to "protect and enhance the reputation and integrity of Jersey in commercial and financial matters" and to "counter financial crime."

Pictured: The fine could have been £996,000, but the regulator halved it due to the LCBM Jersey branch's early cooperation.

The breach related to the bank's failure to identify what's known as a 'correspondent banking' relationship.

Correspondent banking is when one bank – the 'correspondent bank' – provides services to another.

As correspondent banks don't usually have a relationship with the underlying parties involved in a transaction, they are therefore unable to verify their identities and conduct security checks.

Working with correspondent banks therefore carries a higher risk of financial crime occurring, according to the JFSC, which is why local anti-money laundering and counter-terrorism financing rules state that correspondent banks must be identified and handled in a specific and careful way.

However, the Lloyds Bank Corporate Markets team was found to have failed to identify the correspondent banking relationship for what JFSC Director General Jill Britton described as a "protracted period", leaving the branch "exposed to an increased risk of financial crime occurring."

While she said that the "nature of this correspondent banking activity did not present the highest risks typically associated with correspondent banking relationships", Ms Britton noted that such failures can nonetheless "undermine the integrity and stability of Jersey's financial services industry."

"Registered persons must ensure they have effective systems and controls across their business activities to prevent and detect financial crime," she said.

Pictured: The failure left LCBM Jersey branch "exposed to an increased risk of financial crime occurring", JFSC Director General Jill Britton said.

She also noted that the bank had a "strong compliance record" in advance of this breach, had been fully cooperative in resolving it, and were no longer providing any correspondent banking services.

Alasdair Gardner, CEO of the Jersey branch of LCBM, said: "The breaches related to one customer relationship with another Jersey financial institution. While the breaches exposed ourselves to increased risks of financial crime, we conducted our own internal review and did not identify any financial crime as having occurred or any customer losses from the matters identified.

"We are pleased that the JFSC has also acknowledged our strong compliance record prior to this matter. The JFSC also recognised our full co-operation with their process."