20 Dec Metro Bank AML Failures Penalised £16.7 Million by FCA

Metro Bank AML Failures – The Financial Conduct Authority (FCA) fined Metro Bank £16.7 million for significant anti-money laundering (AML) system failings. Between 2016 and 2020, errors in its transaction monitoring process left over £51 billion in customer transactions unchecked. These deficiencies posed significant risks to the integrity of the UK’s financial system. Compounding the issue, delays in resolving known problems further showed gaps in the bank’s compliance framework, resulting in one of the FCA’s most substantial AML fines in recent years.

Metro Bank AML Failures

Faulty Transaction Monitoring System: Metro Bank implemented an automated transaction monitoring system in 2016. Errors in its data input process excluded certain high-risk transactions from scrutiny. For example, transactions made on the same day as an account opening and subsequent activities until the account’s data was updated were left unmonitored. Over 60 million transactions—equivalent to 6% of the bank’s total volume during the period—went unreviewed.

Data Issues Amplified Risks: Compounding these flaws was a “bad data” problem. Customer records with incomplete or incorrect information were automatically rejected by the monitoring system, meaning their transactions were not flagged for potential financial crimes. This failure left unusual and uncharacteristic activity undetected, further undermining the effectiveness of Metro Bank’s AML efforts.

Early Warnings and Delayed Action

Despite warnings from junior staff as early as 2017, Metro Bank did not address these issues promptly. While initial fixes were implemented in 2019, full remediation was not completed until late 2020. The FCA criticised the bank’s delayed response, stating that it exposed the financial system to vulnerabilities for an extended period.

Therese Chambers, joint executive director of enforcement at the FCA, commented:
“Metro Bank’s failings risked leaving a gap in our defence against the criminal misuse of the financial system. These deficiencies went on for far too long, and their impact was significant.”   

FCA Investigation and Penalty

The FCA conducted an investigation into the bank’s systems and processes, revealing the scale of the monitoring failures. As part of its remediation efforts, Metro Bank conducted a “lookback review” of unchecked transactions during the period. This review led to:

• Filing of 153 Suspicious Activity Reports (SARs): These flagged transactions were reported to the appropriate authorities.
• Closure of 43 Customer Accounts: Accounts associated with suspicious activities were terminated.

Metro Bank filed 1,403 SARs during the affected period, but the review revealed additional activities that might have gone unnoticed. The initial fine of £23.8 million was reduced by 30% due to Metro Bank’s cooperation and prompt resolution of the issue.

Broader Implications for the Banking Industry

Metro Bank’s fine reflects increasing regulatory scrutiny of anti-money laundering systems across the financial sector. Earlier this year, Starling Bank faced a £29 million penalty for similar shortcomings, highlighting the FCA’s focus on holding institutions accountable for compliance failures, particularly in transaction monitoring and customer due diligence. For challenger banks like Metro Bank, which aim to innovate and compete with traditional players, this serves as a clear warning that regulatory obligations must remain a priority alongside business growth and technological advancements.

Challenges in Metro Bank’s Journey

Metro Bank’s path has been marked by a series of challenges since its launch in 2010 as the UK’s first new high-street bank in over a century. An accounting error in 2019 severely impacted its reputation, leading to regulatory scrutiny and a sharp drop in its share price. More recently, its request to lower capital requirements on its mortgage portfolio was denied in 2023, raising concerns about its profitability. Despite these setbacks, Metro Bank has worked to stabilise through strategic overhauls and focused recovery efforts.

Signs of Recovery

Metro Bank’s recovery efforts are showing positive results. In October 2024, the bank reported a return to underlying profitability, driven by a focus on higher-margin lending and cost-control initiatives. Over the past year, its share value has more than doubled, reflecting renewed investor confidence. Analysts have also raised profit forecasts, attributing the improvement to the effective execution of Metro Bank’s turnaround strategy. This progress marks a significant milestone in its efforts to stabilise operations and rebuild market trust.

Lessons for Financial Institutions

The Metro Bank case highlights the importance of strong compliance systems to mitigate financial penalties and reputational risks. Key lessons include:

• Regular System Audits: Frequent testing ensures automated monitoring tools operate effectively.
• Timely Issue Resolution: Swiftly addressing deficiencies reduces exposure to risks and regulatory actions.
• Accurate Data Management: Maintaining reliable customer records is crucial for monitoring and detecting risks.
• Employee Training: Staff must be trained to identify and escalate compliance issues promptly to prevent failures.

In conclusion, to avoid challenges like those faced by Metro Bank, financial institutions must ensure stable AML systems and well-trained staff. KYC Lookup provides AML professional courses, including AML Essentials to cover foundational anti-money laundering regulations, Advanced Monitoring Techniques for identifying suspicious activities, and Global Compliance Standards to stay updated on international requirements. These programs are designed to help organisations strengthen their defences and maintain compliance. Equip your team with the tools to safeguard your operations. Visit KYC Lookup today to explore available training solutions.