Financial Regulator, ABLV bank agree record €3m sanction

In a highly unusual move, one of Latvia's three largest banks, ABLV, has said it will pay a €3.17m penalty after negotiating the sum with the country's financial regulator, the Financial and Capital Markets Commission (FKTK).

The amount is the largest ever fine issued by FKTK, trumping the €2m slapped on Privatbank last year for failures in its anti-money-laundering record. 

A carefully-worded statement released by ABLV (formerly known as Aizkraukles Bank) pointed out that the payment was by mutual 'Administrative Agreement' - meaning that technically it is not quite like straightforward fines issued by FKTK previously. 

"Today, the Financial and Capital Market Commission and ABLV Bank entered into the administrative agreement regarding the violations detected under the FKTK inspections, which is aimed at improving the functioning of the bank’s internal control system," said the statement.

"According to the agreement, a fine of €3.17 million will be applied to the bank and warning will be given to the responsible member of the bank’s board. By signing the administrative agreement, FKTK and ABLV Bank have agreed on amicable settlement to terminate the administrative matter initiated by FKTK."

"Determining the amount of fine to be applied, the FCMC took into account that ABLV Bank currently complies with all regulatory requirements and continues improvement of its internal control system, and therefore the fine amount was set to be a minor one, i. e. €3.17 million, which corresponds to 2.5% of the bank's total income for the year."

It was within FKTK's power to issue fine of up to 10% of the bank’s total net income for the previous financial year, which would have amounted to more than €12m.

"During the inspections, FKTK has discovered that the bank had not ensured appropriate extent of verification and documentation of [the] economic nature and legal purpose of particular clients’ transactions in previous years. FKTK considers that the bank had not paid sufficient attention to the client’s untypically large, complex, or interrelated transactions and also had not performed intense supervision of some clients’ transactions under the enhanced due diligence," the statement said.

Interestingly, the statement makes no direct mention of money-laundering, which has been cited as the reason why other non-resident banks including PrivatBank and Trasta Komercbanka. 

Indeed the statement went out of its way to emphasise that the bank has made recent improvements.

"The conclusions made by FKTK during the inspections concern previously executed clients’ transactions and their documentation, however viewing those from the perspective of current more strict criteria. In the last year, there were rapid considerable changes in the requirements regarding provision of services to clients. Currently, the bank fully complies with the regulatory requirements. The number of compliance officers has been substantially increased and the capacity of respective structural units has been strengthened. This was also taken into account by the FCMC when setting the amount of fine to be de minimis applicable to credit institutions according to the law," said the statement.

"Unfortunately, in previous years, no sufficiently detailed requirements for examination and documentation of the clients’ transactions were set."

ABLV Bank said it would keep working on improvement of its internal control system and will allocate not less than €6.5 million for this purpose.

ABLV is the largest independent private bank in Latvia and is one of the banks specializing in non-resident business, primarily involving clients from Russia, Ukraine, Kazakhstan and other former CIS states.

FKTK released a similar but not identical statement of its own, which did mention ABLV's link to transactions that sucked one billion dollars out of Moldova in a notorious fraud.

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