Dealing with non compliance: Introduction
Officers must decide the most appropriate action to take that will bring the business up to an acceptable level of compliance. This must be:
- Proportionate, and
In some areas, such as risk assessment and internal controls, initial action may involve giving the business specific advice on what is required under the regulations, rather than penalties or warning letters. However, where there have been significant CDD or Payment Regulation failures, a penalty may be more appropriate. A penalty should also be issued if there have been previous similar failings (under the current or previous regulations) or if the failing is sufficiently serious in its own right.
The range of options open to compliance staff to deal with non-compliance includes:
- Verbal advice
- Written notice to take specified remedial action
- Warning letter
- Civil penalty
- Referral for criminal investigation
Guidance on issuing warning letters and penalties is in MLR1
Once you decide that a breach of the regulations has taken place you need to decide whether the business has taken reasonable steps and exercised all due diligence to ensure that the requirement would be complied with.
Regulation 42(2) (2) The designated authority must not impose a penalty on a person under paragraph (1) where there are reasonable grounds for it to be satisfied that the person took all reasonable steps and exercised all due diligence to ensure that the requirement would be complied with.
If an officer decides that the business has taken reasonable steps and exercised all due diligence to ensure that the requirement would be complied with, then they should write to the business explaining this.
Decisions on the most appropriate course of action should take into account the business’s actions and behaviour in relation to taking reasonable steps to comply and exercising due diligence; its compliance history; and the actual or potential impact of the regulatory breaches i.e. actual or suspected money laundering activity or the number and size of transactions in respect of which non-compliance occurred. These factors will also determine the size of any penalties.
N.B If money laundering is suspected penalties should not be issued. (This content has been withheld because of exemptions in the Freedom of Information Act 2000) . Refer to MLR1 Penalties guidance
The guidance in MLR 1 explains the circumstances in which it is appropriate to issue warning letters and penalties and the processes for calculating and issuing penalties.
Penalty notices must include an explanation of the regulatory failures that have occurred and how the penalty has been calculated.
It is important that any verbal advice given is recorded in the visit report and confirmed in a letter. Warning letters and letters giving specific advice to a business on required action must:
- clearly set out what the business must do to become fully compliant.
This information will be important for future penalty action.
To ensure all the relevant facts have been taken into consideration, businesses should be given 30 days to make representations about their liability to a penalty before a penalty notice is issued.