Metro Bank fined £17m for failure to control money laundering

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Metro Bank has been fined almost £17m by the UK’s financial watchdog for failing to fix “serious failings” 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, the vulnerabilities remained until a year later.

“Metro’s failure risked a gap in our defenses against criminal abuse of our financial system,” said Therese Chambers, joint managing director of enforcement and market oversight at the FCA. “Those mistakes lasted too long.”

Metro Bank’s £16.7m fine was reduced by 30 per cent because it agreed to the enforcement measures early.

The lender’s chief executive Daniel Frumkin said: “The conclusion of these inquiries 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 Britain’s relatively new challenger banks, after it fined Starling Bank £29m for “shockingly lax” anti-money laundering controls and other breaches.

It also follows a turbulent few years for Metro Bank, which became the first new high street bank in the UK in a century when it opened its flagship branch in Holborn, central London, in 2010.

Metro Bank on Tuesday announced a “return to underlying profitability in October” as part of its “shift towards higher interest specialist loans and commercial, business and SME loans”.

Shares in the bank, which have more than doubled in the past year, rose 3.4 per cent. in early trading 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 £102m capital injection, making Colombian billionaire Jaime Gilinski Bacal its biggest shareholder, cutting a fifth of its workforce and shifting to greater digitization of its business.

Metro Bank has become known for its quirky customer service as well as its physical branches. But its stock market valuation fell after a serious accounting error in 2019. Its problems worsened last year when regulators refused to approve a change that would have lowered capital requirements on its mortgage book – casting doubt on profitability.

The FCA said the automated transaction monitoring system installed by Metro Bank in 2016 was “not working as intended”, noting it had “serious deficiencies”.

It said: “An error in how data was entered into the system meant that transactions took 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 over four years Metro Bank “failed to monitor” more than 60 million customer transactions, or 6 per cent of the total, with a total value of over £51bn. or 7.6 percent of the total amount.

Metro Bank conducted a “lookback review” of these uncontrolled transactions in 2022, which resulted in it filing 153 suspicious activity reports with authorities and telling 43 customers it was closing their accounts. It had already filed 1,403 suspicious activity reports related to the transactions.

The FCA said: “Since the firm’s identification of the issues with its transaction monitoring system in April 2019, Metro Bank has put processes in place to address the issues identified.”