Malpractice
- Breaches of money laundering rules
In March 2012 Coutts received the largest ever fine of £8.75m for breaches of money laundering rules after three years of "serious" and "systemic" problems in handling the affairs of customers vulnerable to corruption because of their political links. The Financial Services Authority (FSA) fined Coutts because of an "unacceptable risk" that the bank could have been handling the proceeds of crime for a three-year period up to November 2010 after failing to properly deal with customers classified as "Politically exposed persons".
Following an industry-wide review in 2010, the FSA found that Coutts was not conducting robust enough checks on such high-risk customers and was not monitoring relationships with them properly. The FSA reviewed a sample of 103 high-risk customer files, and identified deficiencies in 73 of them. The FSA's acting director of enforcement and financial crime, Tracey McDermott, said that "Coutts's failings were significant, widespread and unacceptable. Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures".
Coutts's bonus system rewarded bankers for opening accounts, their anti-money laundering team, intended to act as a check in identifying high-risk customers, failed to identify enough "politically exposed persons". In two cases reviewed by the FSA, bankers did not conduct appropriate checks on the customers, and failed to identify serious criminal allegations against them. There were five cases where sources had provided "adverse intelligence" such as allegations of criminal activity, in each case the accounts were approved by Coutts.
A spokesperson for Coutts, said that there was no evidence that money laundering took place as a result of its deficient controls, and said that "We recognise our systems weren't totally adequate in the past and we've taken steps to improve these". Coutts would have been fined £12.5m if they had not agreed to settle at an early stage in the investigation.
- Mis-selling of AIG savings product
In November 2011 the Financial Services Authority (FSA) fined Coutts £6.3m for mis-selling an AIG savings product between December 2003 and September 2008. The FSA forced Coutts to compensate all customers who suffered a loss as a result of its failings in selling the AIG Life Premier Bonds. A significant proportion of the fund's assets were invested in riskier asset-backed securities. A run was started on the fund following the late-2000s financial crisis.
Coutts customers still had £748m invested in the fund when it was suspended in September 2008, but were only allowed to withdraw half of their investment. In December 2008 customers were given the opportunity to withdraw the remaining 50% but for less than its value. The FSA said Coutts, failed by telling investors the AIG product was a cash fund and advisers were given inadequate training about the risks of the product. Coutts recommended the fund to some customers even though it might have exposed them to more capital risk than they were willing to accept and many customers were advised to invest too large a proportion of their overall assets in the fund. The bank also failed to properly deal with questions about its past sales of the fund and failed to undertake an effective compliance review of its sales of the fund after it was suspended and customers complained.
Coutts agreed to settle at an early stage in exchange for a 30% discount on its fine. Its fine would have been £9m.
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