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Metro Bank has been fined almost £17mn by the UK financial watchdog for failing to fix “serious deficiencies” in an automated system to check transactions for potential money laundering until four years after it was installed.
The Financial Conduct Authority said junior staff raised concerns in the two years after the new financial crime system was launched by Metro Bank in 2016. But even after a fix was put in place in 2019, vulnerabilities remained until a year later.
“Metro’s failings risked a gap being left in our defence against the criminal misuse of our financial system,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA. “Those failings went on for too long.”
Metro Bank ’s £16.7mn fine was reduced by 30 per cent because it agreed to the enforcement action early.
The lender’s chief executive Daniel Frumkin said: “The conclusion of these enquiries draws a line under this legacy issue, allowing the bank to move forward and fully focus on the future.”
The fine is the latest sign that the FCA is cracking down on weak financial crime systems at the UK’s relatively new crop of challenger banks after it imposed a £29mn fine on Starling Bank for “shockingly lax” controls against money laundering and other breaches.
It also follows a turbulent few years for Metro Bank, which became the first new high street bank in the UK for a century when it opened its flagship branch in Holborn, in central London, in 2010.
Metro Bank on Tuesday announced a “return to underlying profitability in October” as part of its “shift towards higher yielding specialist mortgages and commercial, corporate and SME lending”.
Shares in the bank, which have more than doubled in the past year, rose 3.4 per cent in early trading on Tuesday morning. Benjamin Toms, analyst at RBC Europe, raised his profit forecast for the bank, saying it “continues to execute on its strategic plan”.
A year ago, the bank announced a strategic overhaul that included a £102mn capital injection that made Colombian billionaire Jaime Gilinski Bacal its biggest shareholder, cut a fifth of staff and shifted towards greater digitisation of its business.
Metro Bank has become well known for its quirky customer service as well as its physical branches. But its stock market valuation slid after a serious accounting error in 2019. Its problems deepened last year when regulators declined to approve a change that would have lowered the capital requirements on its mortgage book — throwing doubt over its profitability.
The FCA said the automated transaction monitoring system installed by Metro Bank in 2016 “did not work as intended”, noting it had “serious deficiencies”.
It said: “An error in how data was fed into the system meant transactions taking place on the same day an account was opened, and any further transactions until the account record was updated, were not monitored.”
This vulnerability meant that for over four years, Metro Bank “failed to monitor” more than 60mn customer transactions, or 6 per cent of the total, with a total value above £51bn, or 7.6 per cent of the total.
Metro Bank carried out a “lookback review” of these unchecked transactions in 2022, resulting in it filing 153 suspicious activity reports to authorities and telling 43 customers it was closing their accounts. It had already filed 1,403 suspicious activity reports relating to the transactions.
The FCA said the bank also suffered from what it called a “bad data” problem, in which a large number of customer files were rejected by the automated system if they had incomplete or incorrect data, which meant they were not checked for financial crime.
“Consequently, unusual or uncharacteristic transactional activity was not highlighted to the Metro AML teams who would ordinarily use this information to identify suspicious activity,” it said.
The FCA said: “Since the firm’s identification of the issues with its transaction monitoring system in April 2019, Metro Bank has put in place processes to remediate the issues identified.”