Estonian Bank Penalised With €900,000 Fine Over AML Failures

September 1, 2023
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Estonia’s financial watchdog has blamed rapid growth for deficiencies in LHV Pank’s anti-money laundering (AML) controls.

Estonia’s financial watchdog has blamed rapid growth for deficiencies in LHV Pank’s anti-money laundering (AML) controls. 

The Financial Supervision Authority (FSA) of Estonia has identified flaws in the activities of LHV Pank, one of the country’s largest banks. 

The FSA has now issued an injunction to the institution, demanding that it eliminate the weaknesses in its compliance controls. 

A fine of €900,000 has also been levied against the bank for failures in its correspondent banking services.

Correspondent banking is when an account is established by a banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution.

This is not the first time that the FSA has taken action against LHV Pank this year. 

In April, the financial institution was fined €5,000 after it disclosed bank secrets concerning one of its customers to third parties without a legal basis.

LHV Pank now has the right to submit a complaint to the Tallinn Administrative Court within 30 days after the notification of the administrative act.

It also has the right to file a complaint against a wrongful decision within 15 days from the day of receipt of the decision.

However, a spokesperson for the bank told VIXIO that the bank “acknowledges the FSA’s findings and does not intend to dispute their decision”.

“We have always aimed to maintain a transparent and cooperative relationship with the FSA, and we’ve worked closely with them to address the highlighted areas.”

In light of the observations, the spokesperson added that LHV Pank has undertaken significant improvements in its control system, many of which are already in place. 

“It's worth noting that we had begun enhancing our risk control systems even before the inspection commenced,” said the spokesperson. “We strictly onboard only regulated clients, ensuring they meet supervisory requirements.”

In response to the FSA’s criticism, the spokesperson said that the bank has significantly increased the size of the team focusing on risk management.

It is also implementing more in-depth and accurate client monitoring, and has made updates to client contracts with financial intermediaries for higher reporting quality.

Rapid growth is a risky business

The rapid growth of the bank, in combination with the risk environment, led to deficiencies and violations, according to Kilvar Kessler, FSA board chair.

"At rapidly developing financial intermediaries, it may happen that the risk control side does not progress at the same pace as the rapid growth,” said Kessler. 

He added that the case should remind financial institutions that “we must deal with risk management and invest in the field”. 

“LHV Pank has cooperated constructively with us in this matter and started to eliminate the deficiencies. We are following this process closely," he said.

In response to the enforcement action, LHV Pank’s spokesperson said that the bank has implemented a variety of updated measures. 

These include comprehensive updates to AML regulation and processes, an enhanced governance structure and strengthened due diligence measures, and modifications in risk assessment methodologies to align with supervisory expectations.

“Additionally, this year, we're further improving our systems to ensure higher-quality payment data from our clients’ end customers,” the spokesperson said.

“We’re also updating the proactive and reactive control mechanisms for payment data.”

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