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LONDON, June 6 (Reuters) - Britain's markets regulator hasfined the UK division of India's Canara Bank
The Financial Conduct Authority (FCA) said on Wednesday thatthe control failures at the UK division of Canara Bank, India'sfifth largest state-run lender by assets, affected almost alllevels of its business and governance structure, includingsenior management.
The division's AML risk management and governance frameworkhad been not fit for purpose, risking undermining the integrityof the UK financial system - despite regulatory warnings since2012 that its systems needed fixing, the FCA said.
"Canara was warned its money laundering controls wereinadequate and so its failure to remediate them properly is atthe more serious end of the range of sanctions," said MarkSteward, the FCA's head of enforcement and market oversight.
The bank had seconded staff from its head office in India tofill senior management positions in the UK who did not properlyunderstand British legal and regulatory AML requirements,leading to a "consistent failure" to implement adequate systemsand controls, the regulator said.
Canara said it had now resolved the problems.
"The FCA has acknowledged the deficiencies have beenrectified," said Krishna Kant, the head of compliance in London.
The bank's UK division was alerted to a number of problemsafter British regulators visited the bank in November 2012 andMarch 2013. But a third visit in April 2015 found remedialaction insufficient - and the bank had also failed to embed "aculture of compliance" with regulatory requirements, the FCAsaid.
Regulators appointed a so-called "Skilled Person" inSeptember 2015, a process that brings in independent experts toassess a business when watchdogs suspect a firm has governanceor other weaknesses.
The Skilled Person's report on January 2016 highlightedfailures such as an AML risk management that was "not fit forpurpose" and an inability by the bank to identify or flagunusual transactions or recognise PEPs - politically exposedpeople whose public status can make them vulnerable tocorruption.
"These failings were endemic throughout Canara's UKoperations, affecting almost all aspects of its business andsuggested that Canara may not be fit and proper," the FCA said.
"Such weaknesses potentially undermine the integrity of theUK financial system by significantly increasing the risk thatCanara could be used for the purposes of domestic andinternational money laundering, terrorist financing and thoseseeking to evade taxation or the implementation of sanctionrequirements," it said.
The regulator noted that Canara had made significantinvestments in improving systems and oversight, increasedtraining and brought in external consultants.
It qualified for a 30 percent discount to the original finefor agreeing to settle at an early stage of the regulatoryinvestigation. ($1 = 0.7449 pounds)
(Reporting by Kirstin Ridley. Editing by Jane Merriman) ((kirstin.ridley@thomsonreuters.com; +44 (0) 207 542 7987;Reuters Messaging: kirstin.ridley.reuters.com@reuters.net))
