Fiduciary firm hit with biggest fine imposed by GFSC

Equiom (Guernsey), part of a global financial services group with offices in 15 jurisdictions, has been fined £455,000 for failing to meet minimum licensing criteria.

The GFSC found that as a business with a high-risk appetite, it was not suitably staffed and the turnover of staff, and particularly board directors, were a red flag for the regulator.

It said that a new private equity majority shareholder introduced in 2019 had created an environment of being more interested in its financial position than complying with local regulations.

More than two-thirds of the clients of the Guernsey office were rated as high risk, with clients from jurisdictions regarded as posing a higher risk of money laundering, bribery and corruption. Media reports indicated some clients were allegedly involved in criminal activity.

The commission visited the local office in 2017, and noted concerns about the make-up of its board, a backlog of risk reviews, and failings in relationships with clients. It was required to complete a remediation programme.

Four years later the commission called again and found similar issues remained. There was only one local board director and there had been seven resignations from the board in the past two years, with just one replacement made. The backlog of risk reviews remained. It started an investigation at that point.

It found that between 2018 and September 2023 the firm was at times under-resourced and lacked skills, knowledge and experience. The Equiom parent company was taken over by a private equity investor in May 2019, which imposed pressure to upstream funds within the group and embarked on a round of redundancies in that first year.

The commission said that it appeared that the group was ‘more interested in its own financial position than with its compliance with the Bailiwick’s regulatory framework’.

Across a five-year period, 20 directors were appointed to the Guernsey board and 20 resigned. No director stayed in place across the five years. The commission said that this was a ‘significant turnover for a large firm with a high-risk book of business’.

‘The significant turnover of directors resulted in the licensee not being headed by a effective board. The constant changing of directors meant no director could take ownership and ensure that the remediation plan was completed satisfactorily,’ the GFSC said.

Turnover of staff was as high as 50% in some years and the company’s backlog of client reviews were never addressed. It rose from 216 at the start of 2020 to nearly 600 by the autumn of 2021.

The commission also found that the company’s policies, procedures and controls were not always effective.

Equiom had already identified some of its issues and informed the commission before it visited in 2021, though it did not mention its staffing problems.

It had brought in external help to review its backlog and issues following the 2017 visit but that had not been effective. Remediation continues and the commission noted that substantial steps and significant resources had been taken and invested. The company is ending relationships with some of its most risky clients.

Equiom had a new majority shareholder take over the business in August 2022. The company now has a new leadership team and a ‘relatively stable’ board over the past 12 months, and staff turnover has reduced.

The company cooperated fully with the investigation and agreed to settle at an early stage of the process, which earned it a 30% discount when setting the financial penalty.

'HIGH-RISK' CLIENTS

The report detailed several examples of relationships Equiom had with clients considered to be high risk.

One was an individual from a Central American country who was once suspected of laundering money for drug cartels. He had also received a big fine from another financial services regulator in the past for providing misleading information regarding his acquisition of a bank.

Others included four Russian clients, one of which was a politically exposed person who has subsequently been arrested for embezzlement.

Another was added to the European Union and UK lists of sanctioned individuals following the Russian invasion of Ukraine.

There were concerns about politically exposed persons as clients and the company’s record on tracking sources of funds and documenting them were inconsistent, including an incident of the acquisition of a car for 3m. euros.