Singapore has banned a bank from operating because of "gross misconduct" and AML lapses, the first time a merchant banking licence has been revoked since 1984.

Singapore’s financial regulator is stripping BSI Bank of its merchant banking status because of anti-money laundering lapses, poor management oversight and “gross misconduct” by some of its staff.

“BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously,” Ravi Menon, managing director, [tag|Monetary Authority of Singapore|]Monetary Authority of Singapore[/tag], said in a statement today.

This is the first time MAS has withdrawn its approval for a merchant bank since 1984, when Jardine Fleming (Singapore) was shut down for serious lapses in its advisory work.

[tag|BSI|]BSI[/tag], Swiss-based parent of BSI Bank, in a separate statement, said that Stefano Coduri, BSI's group chief executive, has decided to immediately step down and that Roberto Isolani has been appointed group CEO. BSI is in the process of being acquired by EFG International, another Swiss bank.

While the MAS statement made no reference to the Malaysian state-run fund, 1MDB, which has been at the centre of a major political and financial scandal concerning bribery and corruption claims, BSI, in its own statement today, referred to "the investigations into 1MDB, arising from activities occurring between 2011 and April 2015". BSI said it has "co-operated fully with both FINMA and MAS".

"BSI remains well capitalised with excellent liquidity and solvency ratios. In addition, the bank highlights that it has been continuously improving its risks and compliance culture by implementing a number of actions and remedial measures. The bank has undertaken significant steps to strengthen management, including the introduction of a new chief risk officer and the appointment of a new group legal counsel both at group executive board level to enhance the overall risk and compliance framework," it said.

"BSI acknowledges that these events are important steps with regard to the regulators to resolve legacy issues and removing uncertainty for clients and staff in relation to 1MDB."

The action highlights how Singapore, one of the world’s leading financial centres and bases for wealth management, is mindful of its reputation at a time when there is heightened global focus on money laundering and illicit money flows. The MAS statement did not state the magnitude of the financial flows involved in the BSI Bank case.

Besides removing its merchant banking approvals, MAS has referred to the public prosecutor the names of six members of BSI Bank’s senior management and staff to evaluate whether they have committed criminal offences.

The action is arguably the most severe that Singapore has taken against a bank over such matters in recent years.

BSI Bank has been operating as a merchant bank in Singapore since November 2005.

Solvent
The regulator said clients and customers of BSI Bank could be assured that the bank is solvent and is fully backed by its parent bank.

“MAS is working closely with the Swiss Financial Market Supervisory Authority (FINMA), the home regulator of BSI SA, to oversee an orderly closure of BSI Bank in Singapore,” the regulator said.

Because of recent Swiss regulatory approval of EFG International’s acquisition of BSI Bank’s parent, MAS said it will allow the transfer of the Singapore subsidiary’s assets and liabilities to the Singapore branch of EFG Bank or to the parent entity, BSI.

Explaining the background, the regulator said it carried out an inspection of BSI Bank in 2011 and “found policy and process lapses at the front office and weak enforcement by control functions”, but those lapses were rectified.

In 2014, MAS inspected the bank again and said it uncovered serious shortcomings in its due diligence checks on assets underlying the investment funds structured for the bank’s customers. Given repeated findings of weaknesses in its control regime, MAS instructed BSI Bank’s management to increase scrutiny of the bank’s risk management processes and internal controls. A more intrusive third inspection by MAS in 2015 revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance, MAS said.

The MAS said specific regulatory lapses include the processing of multiple unusual transactions, which were essentially pass-through trades often without economic substance. Approvals of such transactions were based purely on faith of client representations despite deficient documentation and concerns raised by the bank’s compliance officers, it said.

“MAS found considerable evidence of gross dereliction of duty and failure to discharge oversight responsibilities on the part of BSI Bank’s senior management. Their ineffective governance led to a poor risk culture, which prioritised questionable customer demands ahead of compliance with anti-money laundering regulations and the bank’s own internal controls,” the regulator said.

It said several bank staff also committed “wilful acts of misconduct”, such as making material misrepresentations to auditors; abetting improper valuations of assets; and taking instructions from persons other than customers’ authorised representatives on matters relating to customers’ accounts.