GFSC fine Equiom £455,000 for regulatory failures

Wednesday 31 July 2024

Equiom was a fiduciary company with a high-risk appetite and clients suspected of being criminals, but it was under-resourced with a parent company and its private equity investor “more interested in its own financial position” than complying with regulation.

It has been fined £455,000 by the Guernsey Financial Services Commission after an investigation that found that the board was ineffective between January 2018 and 7 September 2023 and that the company did not have an adequate number of staff with the skills, knowledge and experience to fulfil its duties.

Equiom, the GFSC said, failed to monitor and manage the financial crime risks associated with its customers as required, which was “particularly concerning” given its size and large proportion of high-risk clients which included those sanctioned after the invasion of Ukraine and another suspected of laundering money for drug cartels.

In May 2019, Equiom’s ultimate parent company was acquired by a private equity investor, which remained in place until August 2022, until it was then acquired by its current majority shareholder.

In January 2020, another licensed fiduciary amalgamated with it.

“The Licensee is a large business with a high-risk appetite and a significant number of high-risk relationships,” the GFSC said in its ruling.

“As at 30 June 2021, approximately 68% of its business relationships were high-risk. A significant number of clients were from, or linked to, jurisdictions which are regarded as posing a higher risk of money laundering, terrorist financing and/or bribery and corruption. A number of clients were allegedly involved in criminal activity according to media reports.”

A Commission visit in 2017 identified a number of issues and it was required to complete a remediation programme.

The GFSC followed up with a visit in 2021, identifying similar issues again:

• An inappropriate board composition and an under-resourced board. At the time of the 2021 Visit, there was only one executive director based in Guernsey. The Commission also noted that there had been seven resignations from the board and only one appointment over the last two calendar years; 
• A backlog of periodic risk reviews and action points; and 
• Deficiencies in the client files reviewed, including in relation to initial and periodic risk assessments, enhanced customer due diligence and monitoring of transactions and activity.

The investigation followed that visit.

“The Commission’s investigation found that the board of the Licensee was ineffective in the period 1 January 2018 to 7 September 2023 (“the Relevant Period”), being at times under-resourced and that the Licensee did not have an adequate number of staff with the skills, knowledge and experience to fulfil the Licensee’s duties,” the GFSC said.

“However, during the latter stages of the Relevant Period and subsequently, steps have been taken to improve the board effectiveness. The board has also been relatively stable in the last 12 months.

“The ineffective board and the lack of adequate staff resulted in the Licensee failing to monitor and manage the financial crime risks associated with its customers as required by Schedule 3 and the rules within the Handbook. This was particularly concerning due to the size of the Licensee’s business and the large proportion of high-risk clients. 

“Following a number of acquisitions, with little apparent attention paid to synergies or post-acquisition integration, and the takeover of the ultimate parent company by the then private equity investor, cost cutting measures, including redundancies, were imposed on the Licensee through 2018 and 2019 when it was already under-resourced and the Licensee was under pressure to upstream funds. 

“This resulted in the ultimate parent company and its private equity investor in place at the time appearing to the Commission to be more interested in its own financial position than with the Licensee’s compliance with the Bailiwick’s regulatory framework.”

Between January 2018 and September 2023 there was a staff turnover of 50% or more in each of two consecutive years.

The GFSC applied a 30% discount to the penalty after the firm cooperated fully and agreed to settle at an early stage of the process. 

“The remediation following the 2021 Visit is ongoing,” the GFSC said.

“The Licensee has taken substantial steps and invested significant resources attempting to remediate the failings identified in this public statement. The Licensee appointed a third party, at the Commission’s direction, to provide leadership, project management and assurance of the remediation. 

“The remediation includes exiting a large number of clients, including those examples referred to above. 

“Steps have been taken to improve the board effectiveness under a new leadership team, and a new majority shareholder all of whom came in after the 2021 Visit. The board has also been relatively stable in the last 12 months. In addition, staff turnover has reduced over the last 12 months. Contractors have also been brought in to assist with remediation and the exiting of business.”

The full judgement is available here.