Latvia's Rietumu Banka hit with record fine by regulator

Latvia's banking regulator, the Financial and Capital Market Commission (FKTK) said June 17 it was handing out a record fine to local bank Rietumu Banka over failures in its anti-money laundering systems.

The decision was taken by FKTK on June 15. It said it had "decided to apply a fine of EUR 5.85 million on AS Rietumu Banka for infringements of the regulatory requirements regarding anti-money laundering and counter-terrorism and proliferation financing (AML/CTPF). The bank is also subject to a number of legal obligations to address identified violations and shortcomings."

The regulator said that in 2019 it carried out an onsite inspection of Rietumu Banka and in 2019 and 2020 – targeted inspections in the field of AML/CTPF, assessing compliance of the bank with the AML/CTPF regulatory requirements, as well as whether there was an internal control system in place capable of identifying risks to enable the bank to prevent the use of the bank and Latvia's and the EU's financial systems for money laundering and terrorist financing.

"During the inspections, the FCMC identified irregularities and deficiencies related to insufficiently effective bank’s internal control system and risk management, as well as came to the conclusion that the bank had not adequately assessed the risks associated with the activities of payment service providers (including foreign) and, in some cases, the level of ML/TPF risk inherent to the customer was determined lower than the
actual risk level," FKTK said.

"The inspection revealed that insufficient resources were available in the bank for the ML/TPF risk management, as well as there had been a lack of comprehensive internal audit service inspections, incomplete internal regulatory framework in the field of AML/CTPF and lack of customer due diligence quality control. These had been the causes of significant irregularities in several customer due diligence and transaction monitoring processes, such as carrying out timely and high-quality customer due diligence, including enhanced due diligence and documentation of its findings, identification of the origin of financial funds, ensuring sufficient customer transaction monitoring, identification of beneficial owners and reporting timely to the Financial Intelligence Service, identification of shell corporations," it added.

No explanation was offered as to why it had taken so long to issue the penalty.

Nevertheless, FKTK said it had also told the bank to develop an action plan to immediately address the irregularities identified in the inspections and continue work on changing the business model and reducing risk exposure rates of high-risk jurisdictions, and to review the customer's risk assessment scoring system and to carry out audits of its customer base with increased ML/TPF risk.

Rietumu was also fined 1.5 million euros in 2017 for essentially the same thing and at that time was also told it had an obligation to assess its AML/CTF internal control system and take the necessary measures.

Even so, Rietumu's corporate website boasts: "In 2018, Rietumu Bank transformed its business strategy in accordance with the latest requirements of the regulators. This work was highly assessed by both Latvian supervisory bodies and foreign partners."

According to the LETA newswire, the new fine is the largest single penalty ever handed out by the regulator.  In 2016 it imposed a fine of 3.1 million euros on ABLV Bank.

According to Rietumu's own financial statements, in the first three months of this year the bank made EUR 5.6 million in net profit and the Rietumu Group's profit reached EUR 8.5 million. 
The volume of assets increased by 7% over the same period compared to 31 December 2020 and has reached EUR 1.6 billion, while customer deposits have increased by 10% to EUR 1.2 billion.

Rietumu told LSM the bank will determine its position and possible reaction to the decision of the regulator after it has become acquainted with the FKTK decision text, suggesting it did not receive advance notifcation.

"However, we can already say that the shortcomings identified during the inspection, which are mentioned in the regulator's statement to the press, essentially were minor, technical and formal," Rietutmu said via a spokesperson.

"None of [the shortcomings] had significant consequences or damage – neither moral nor material. These were minor mistakes and shortcomings, so we are extremely surprised by the size of the fine. Also surprising is the situation when a bank receives information on a regulatory decision simultaneously with its press release," Rietumu said.

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