27 May 2021

Reserve Bank takes TSB to court on anti-money laundering law breaches

7:47 pm on 27 May 2021

The Reserve Bank is taking TSB Bank to court for breaching anti-money laundering laws.

Sign for TSB Bank

TSB Bank Photo: RNZ / Claire Eastham-Farrelly

The central bank has filed claims in the High Court against TSB for failing to fix faults in its systems that it was warned about in 2016.

Deputy RBNZ governor Geoff Bascand said despite the early warnings, TSB had been "inadequate and ineffective" in remedying the problems.

"We are disappointed that TSB did not respond sufficiently to our initial formal warning. We are now obliged to take this High Court procedure," Bascand said.

The bank was not involved in money laundering or financing terrorism but it did not have proper systems to ensure it was complying with the law, he said.

Other breaches were that it did not do the necessary risk assessment on land deals, and it did not have regard to some of the countries it did business with.

Retail banks were among the first financial entities required by the law to put in place systems to monitor transactions, do risk assessment and due diligence on customers and deals, and report any suspicious activities, he said.

The RBNZ told TSB as far back as 2013 it needed to improve its compliance, and formally warned the bank in late 2016 about the deficiencies in its systems and procedures and lack of progress in resolving them.

It did an on-site inspection in 2019, and last year signalled it was going to take formal enforcement action for the failure to fix the faults.

Bascand said TSB had acknowledged the breaches and it had agreed a statement of facts for the court.

In a statement, TSB chair John Kelly said the bank acknowledged it needed to address some areas of compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act.

A programme had been put in place since 2019 to do that, Kelly said.

"TSB is committed to raising the bar in its risk maturity and compliance management and setting a higher standard going forward.

"We are extremely pleased with the progress that is being made. We still have work to do, but we now have stronger foundations in place which we'll continue to build on."

In a statement, TSB chief executive Donna Cooper said the bank was committed to implementing effective compliance programmes and processes going forward.

"Over the last two years, uplifting our risk and compliance maturity has been our priority focus," Cooper said.

"As a result, we've made significant progress in building the right culture and supporting programmes and tools to deliver in this space."

TSB said it could not comment further at this stage because the matter was before the court.

The RBNZ is seeking financial penalties.

Breaches of the anti-money laundering and countering financing of terrorism law can lead to a fine of up to $200,000 for an individual, and $2 million for a company.