In May, the Financial Conduct Authority (FCA) imposed a financial penalty, prohibition, and withdrawal of approvals against David Brian Price, a former executive director and money laundering reporting officer (MLRO) at CFP Management.

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The last time the FCA penalized an MLRO was in 2016 at Sonali Bank. Issues in that case included the MLRO failing to:

  • Put in place an anti-money laundering monitoring arrangement;
  • Identify serious weaknesses in operational controls;
  • Address training deficiencies;
  • Report internal auditors’ concerns; and
  • Impress upon senior management the need for more resources.

The fine against Price raises interesting questions for MLROs and sends a strong message to the financial industry, particularly those who work in senior management functions or hold oversight responsibilities.

The case is different from the Sonali Bank enforcement because it lacks true financial crime compliance issues. Price’s case relates primarily to failings of integrity and risk management because he held another control function where he effectively benefitted from the risky business model he was overseeing. This creates an interesting scenario around ethics and integrity, conflict-of-interest management, firm culture, consumer protection, and the senior management regime finally being enforced.

It is worth examining five key issues identified by the FCA in its notice and the questions each raise for other MLROs.

1. Flawed pension transfer model

From April 2015 to October 2017, CFP and its appointed representative, Company B, employed a flawed pension transfer advice model that exposed clients to the risk of receiving unsuitable pension transfer advice, according to the FCA. Price oversaw this business model and financially benefitted from the unsuitable advice given to vulnerable customers.

Questions for other MLROs:

  • Do you fully understand business models outside of the financial crime risks?
  • Do you fully understand the compensation model in your organization? Are appropriate safeguards in place?
  • Do you review suitability of advice? Does it sit within your current remit of responsibilities? Should it?
  • Have you checked whether any other general compliance responsibilities should sit within your remit, depending on the size/nature of the organization and/or if somebody else has accountability for these?
  • Has it been documented?

2. Failure to act with integrity

The FCA asserted Price, as a director at CFP and Company B, failed to act with integrity in carrying out his role. He was responsible for ensuring the pension transfer model complied with regulatory requirements, but he did not do so effectively.

Questions for MLROs:

  • Have you defined integrity within your organization? Has it been documented?
  • Do you put customers’ interests first? Can you demonstrate this?
  • Do you hold any other controlled functions? If so, could conflicts of interest arise?

3. Recklessness

Price’s actions were deemed reckless by the FCA. He oversaw and participated in an advice process that lacked proper safeguards, enabled pension transfer specialists to issue unclear or misleading reports, and did not adequately consider clients’ financial circumstances and objectives.

Questions for MLROs:

  • Have you documented your risks appropriately in a risk assessment?
  • Have you had others review your risks to challenge the status quo?
  • Have inherent risk, control effectiveness, and residual risk ratings been given rationales, or is there a documented methodology for the calculation of the risk?
  • Do you receive any personal reward that could conflict with your accountability for the controlled function?
  • Are any conflicts of interests effectively assessed, documented, mitigated, and monitored?

4. Unsuitable advice

As a result of these alleged failures, CFP’s clients received recommendations to transfer their pension benefits, potentially putting them at a financial disadvantage. This was contrary to regulatory guidance that generally discourages transferring out of defined benefit pension schemes.

Questions for MLROs:

  • How far does your monitoring overlap into other compliance areas?
  • With whom should accountability suitability sit?
  • Do you review or monitor the potential impact of variable income streams within the firm?

5. Financial gain

Price benefitted financially from these breaches and the unsuitable advice given, receiving substantial remuneration during the relevant period, the FCA said.

Questions for MLROs:

  • Have you fully considered the risks of holding both a senior management role as well as any additional controlled functions? Have you done enough to mitigate those risks?

The FCA’s decision notice serves as a stark reminder that individuals in senior management and MLRO roles are entrusted with significant responsibility and will be held accountable. Failure to uphold the highest standards of integrity and compliance can result in financial penalties, prohibition orders, and the withdrawal of approvals to protect the interests of clients and the integrity of the financial industry.

This article contains revisions from the original story by author Ariane Baldwin-Webb for the International Compliance Association. The ICA is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.

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