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laundrette | accountingweb | EY mulls further job cuts as Santander AML fix-up failure costs £15m

EY refunds Santander £15m for poor service


The pitfalls of outsourcing critical financial crime projects to consultants have been exposed by EY’s failure to help Santander satisfy anti-money laundering regulatory demands, with the Big Four firm forced to hand back £15m.

27th Sep 2023
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EY has reportedly repaid Santander UK £15m after the bank was dissatisfied with the Big Four firm’s work to fix lingering financial crime compliance issues.

Consultants from EY were hired by Santander, along with other experts, to resolve anti-money laundering (AML) and financial crime shortcomings that had drawn regulatory ire, the Financial Times reported.

The quality of work, codenamed Project Morgan, was deemed so poor the professional services firm was forced to give the bank a £15m refund.

EY’s consultancy revenue took a serious hit according to sources close to the matter.

In December, the Financial Conduct Authority (FCA) fined Santander £108m for “repeated AML failures” after years of inaccurate and substandard monitoring of high-risk accounts.

The regulator estimated that the bank had washed nearly £300m in criminal funds between 2012 and 2017, and it ordered the firm to overhaul its systems and controls after handing out one of its largest penalties to date.

Poor operating framework

As far back as 2012, Santander UK’s internal audit department had notified senior management that its AML governance and operating framework was poor and in need of a major upgrade. 

An unnamed “external consultancy” was commissioned by the bank in 2013, and a report was produced that laid bare the “immature” AML framework in place inside the lender. 

The bank continued to hire external help up to 2017, according to a report by the FCA.

However, Project Morgan “went badly wrong over an extended period” said an individual close to the case.

EY has not commented on the matter, and it is not known if the bank took the work in-house.

Santander said it has spent “more than £700m over the past five years in a programme to transform its financial crime systems”. 

“We need to keep pace with technological change, which involves piloting new platforms and processes to ensure we are complying with best practice and continuing to innovate,” it said.

Risky business

Industry experts said financial institutions are taking risks by hiring consultancy services to combat money laundering, as criminal enterprises have evolved to such sophisticated techniques it is a challenge for any party to take them on.

“How each bank chooses to solve for its know your customer needs for event-driven and periodic reviews is a massive strategic decision,” said Alexandra Rice, former Santander data management lead.

“The next huge decision is to work out what good will look like, and then how to measure it,” she said. “If there is lots of manual intervention, as with all processes with huge reliance on people, it will be tricky to scale without eye-watering cost. Embrace data, fit-for-purpose technology, and make sure the client-facing experts are part of the solution design.”

Netherlands-based compliance officer and regulatory affairs consultant Filip Altiparmakovski added that this was proof of what has been experienced in the field for the past few years. “The Big Four can’t deliver customer due diligence.”

Headcount reduction

The Big Four firm is expected to announce layoffs in the coming months after signalling it will reduce its 150-person financial crime team as part of wider consultancy cutbacks. The failure of the Santander project is likely to result in a further headcount reduction.

Project Morgan’s tanking accompanies the demise of Project Everest, the doomed internal bid to split EY and float its consulting arm on public markets. 

The firm announced in April it had dropped the plan following a major split inside the business, with the UK side failing to win over US partners.

Soon after, company CEO and global chairman Carmine Di Sibio, who was leading the plan to spin off the lucrative consulting arm, announced he would step down.

It has since emerged that US private equity firm TPG had approached EY regarding an investment in the consultancy, but the offer was rebuffed.

Andrea Guerzoni, EY’s global vice chair of strategy and transactions, told Private Equity News: “We’ll refresh our strategy following the appointment of the new CEO. It’s quite obvious that this is not the moment to engage with these kinds of situations.

“We’ve been doing very well over the past 12 months despite some disruption that Project Everest has brought about, and we’re doing very well now. It’s business as usual.”

Replies (7)

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By Wanderer
27th Sep 2023 14:27

"The regulator estimated that the bank had washed nearly £300m in criminal funds between 2012 and 2017"

How is that even possible? They only needed to obtain a copy of a passport & a utility bill then complete a tick list & apparently that stops all these money laundering shenanigans.

Thanks (2)
Replying to Wanderer:
By flightdeck
28th Sep 2023 09:57

Always my thought too - how do so many rogue account get opened?

Thanks (0)
Danny Kent
By Viciuno
27th Sep 2023 16:17

Can only assume EY would defer to their in-house experts when setting up their own AML procedures.

Has someone looked at EY's AML procedures?

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Replying to Viciuno:
By Ben Alligin
28th Sep 2023 09:23

No the ICAEW just look at single person practices for AML. We all know that most money laundering is not by Oligarchs, but by local window cleaners and other small traders with an annual turnover of less than £30k!!

Power to the Institute.

Thanks (2)
By SuperAccountingSteve
28th Sep 2023 11:39

probably diversity , inclusion and equity doctrines, rather than merit, i.e. the consultants were not competent. When planes start dropping from the sky and bridges collapse, is when people might finally wake up, to this poison.

Thanks (2)
Replying to SuperAccountingSteve:
Danny Kent
By Viciuno
28th Sep 2023 16:54

Probably graduates with a generic business degree, with no concept of the real world as well!

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By dwh7358
28th Sep 2023 13:41

Could n’t agree more Filip A’s comments about outsourcing to to big 4 firms. Working outside of practice, I’ve on the wrong end of them for a different bank and Big 4 firm. About the only satisfying thing about it was knowing our relationship manager was just as annoyed by the so-called experts ineptitude!

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