The UK's financial watchdog, the Financial Conduct Authority (FCA), has imposed a hefty £16.7 million fine on Metro Bank for significant lapses in its money-laundering controls over a four-year period. The regulator found that the bank failed to adequately monitor millions of transactions, leaving a concerning gap in its defenses against financial crime.

Uncovering the Systemic Flaws in Metro Bank's Anti-Money Laundering Measures

Persistent Failures Despite Early Warnings

The FCA's investigation revealed that Metro Bank's money-laundering monitoring system was plagued by issues for years, despite concerns being raised by junior employees as early as 2017. Despite these warnings, the bank did not take comprehensive action to resolve the problems until 2019, and even then, the fixes were not sufficient to consistently monitor all transactions. It was not until December 2020, more than four-and-a-half years after the system was launched, that Metro Bank was finally able to effectively check all customer transactions for potential financial crimes.During this prolonged period of inadequate controls, it is estimated that transactions worth a staggering £51 billion were not properly monitored for money-laundering risks. This failure to uphold robust anti-money laundering measures left the financial system vulnerable to exploitation by criminal elements.

Automation Flaws and Delayed Remediation

The root of the problem lay in the way Metro Bank had automated its transaction monitoring system. From June 2016, the bank began using an automated system to monitor customer transactions for potential financial crimes. However, the FCA found that there were significant errors in how data was fed into the system, resulting in transactions that took place on the day an account was opened, as well as some further activities, being left unmonitored.Despite the junior staff members raising concerns about these issues in 2017 and 2018, the bank did not take decisive action until 2019. Even then, the fixes implemented by Metro Bank failed to adequately monitor all transactions, leaving the system with lingering vulnerabilities.

Hefty Fine and Regulatory Scrutiny

The FCA's penalty of £16.7 million reflects the severity of Metro Bank's failings in this area. The regulator had initially intended to impose a fine of £23.8 million, but the bank was granted a 30% discount for agreeing to resolve the problems. This significant fine serves as a stark reminder to financial institutions of the importance of maintaining robust anti-money laundering controls and the consequences of falling short.The Metro Bank incident has also drawn heightened regulatory scrutiny to the broader challenge of financial crime prevention in the banking sector. Just last month, the FCA imposed a £29 million fine on another challenger bank, Starling, for "shockingly lax" financial crime controls, underscoring the need for industry-wide improvements in this critical area.

A Turbulent Period for Metro Bank

The money-laundering control failures at Metro Bank come during a tumultuous period for the challenger bank. In January 2019, the bank experienced a significant accounting error that led to a dramatic single-day collapse in its share price, the largest such incident in the UK since the 2008 financial crisis.More recently, in October 2022, Metro Bank was the subject of a £925 million rescue deal, with the Colombian billionaire Jaime Gilinski Bacal taking a majority stake in the bank. This move has been seen as a turning point, with the bank now forecasting a return to profitability by the end of the year.Despite these challenges, Metro Bank's chief executive, Daniel Frumkin, has expressed optimism about the bank's future, stating that the conclusion of the FCA's inquiries will allow the bank to "move forward and fully focus on the future, building on the solid foundations it has already laid." The bank's shift towards higher-yielding specialist mortgages and commercial, corporate, and SME lending is seen as a key part of its turnaround strategy.