Transaction Monitoring: FCA’s Expectations

Transaction monitoring is crucial for the prevention of financial crime, and the FCA expects firms to implement robust systems and controls to detect suspicious activity in real time, in alignment with their requirements under the Money Laundering Regulations 2017. Whilst the FCA does not mandate a specific type of transaction monitoring technology, firms are expected to apply a risk-based approach to transaction monitoring, combining automated and manual oversight. Automated tools can be employed to detect unusual patterns and flag suspicious activity in real-time, and manual monitoring can be used to ensure that such alerts are properly investigated.

Firms must tailor their monitoring efforts to the risk profile of their customers and transactions, with ongoing monitoring to detect emerging risks. Any suspicious activity must be reported to the National Crime Agency, and firms are required to keep detailed records of their monitoring processes and suspicious activity reports for at least five years. Non-compliance with these expectations can lead to enforcement actions, underscoring the importance of effective transaction monitoring

Metro Bank PLC: A case study

Metro Bank PLC was found to have failed to take corrective measures after concerns were raised regarding the disorderly functioning of its monitoring system. The FCA highlighted that these shortcomings left the financial system vulnerable to criminal misuse and reiterated the importance of firms implementing and maintaining robust systems and controls to combat financial crime.

Metro Bank PLC AML and Transaction Monitoring Failings:

• Automated Transaction Monitoring System (ATMS): Implemented in June 2016, Metro Bank PLC’s ATMS had serious deficiencies in setup and oversight, leading to over 60 million unmonitored transactions worth £51 billion.
• The Time Stamp Code Logic Error: Identified in April 2019, this error stopped transactions from being fed into the ATMS, impacting 46.5 million transactions worth £31.5 billion over 3 years.
• Failure to Identify and Address Issues: Metro Bank PLC failed to identify the error promptly and lacked adequate checks to ensure data completeness. A fix in July 2019 didn’t resolve the issue until December 2020, resulting in unmonitored transactions for over four years.
• Bad Data Management: Metro Bank PLC had inadequate controls for handling “Bad Data” (rejected records), with no regular review process for records rejected by ATMS.
• Governance Failures: Despite early concerns raised by staff, Senior Management failed to take timely action, delaying corrective steps even after multiple external reviews.
• Regulatory Breach: Metro Bank PLC breached Principle 3 of the FCA’s Principles for Businesses by failing to exercise due diligence in organising and managing its operations in a responsible and effective manner, with appropriate risk management systems in place.

Remediation Efforts

Metro Bank PLC has since implemented a comprehensive Financial Crime Improvement Programme to address the issues identified. Key actions include upgrading the bank’s data architecture and controls, reaching a 99.7% reconciliation rate for transaction records processed into the ATMS since July 2019, strengthening oversight of Bad Data, and allocating more resources to monitor and evaluate the ATMS for improved detection of suspicious activity. These efforts are supervised by the Bank’s Executive Data Governance Working Group.

How Complyport can Help

Financial institutions are obligated to maintain adequate risk-based Anti-Money Laundering (“AML”) controls and comply with the appropriate Money Laundering Regulations and subsequent amendments.

Complyport’s expert Financial Crime Team can assist you maintain the integrity of your financial system and prevent illegal activities like money laundering, terrorist financing and proliferation financing by assisting with putting effective AML policies, procedures and controls in place and create a robust financial crime compliance framework.

What we offer:

• Comprehensive AML and CTF Framework Assessments: Evaluate your current AML and CTF governance and controls against legal standards and industry best practices
• AML Audits: Conduct a thorough review of your AML policies, procedures and compliance practices to assess the effectiveness of your company’s measures to prevent and detect money laundering activities
• Training needs: Design a comprehensive training and assessment programme to ensure your teams understand your financial crime risks and controls
• Regulatory Alignment: Help you prepare for supervisory visits, ensuring your framework meets the latest regulatory requirements
• Ongoing Support: Provide continuous assistance to implement and enhance your AML and CTF

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