Three financial institutions fined for flouting customer due diligence protocols

• People’s Merchant Finance, Ideal Finance and Seylan Bank fined cumulative Rs.2mn

The Central Bank of Sri Lanka (CBSL) added to the Consolidated Fund a sum of Rs.2 million during the third quarter, which was collected by way of imposing penalties on three financial institutions for non-compliance with Financial Transaction Reporting Act (FTRA) provisions.

Accordingly, the Central Bank had imposed penalties on Peoples’ Merchant Finance PLC, Seylan Bank PLC, and Ideal Finance Limited.

Peoples’ Merchant Finance PLC was slapped with a penalty of Rs.1 million on 6 July 2021 for non-compliance with customer due diligence protocols under the Financial Institutions Rules in relation to procedures of United Nation’s sanctions screening. 

In a statement to the media yesterday, the CBSL said that during the on-site examination, the Financial Intelligence Unit (FIU) observed that People’s Merchant Finance PLC failed to implement systems and procedures to maintain the complete list of designated persons and entities under relevant United Nations Security Council Resolutions (UNSCRs), and screen its prospective customers at the time of onboarding as required by CDD rules.

The institution also did not implement mechanisms to screen the existing customer base or existing business relationships when any of the relevant UNSCR lists were updated in order to ensure that no business relationship was held by or linked to any of the entities or individuals included in the updated designated lists.  The CBSL said that although lapses in systems and procedures were observed, instances of business relationships with designated individuals or entities by People’s Merchant Finance PLC were not revealed during the on-site examination.  Since then, People’s Merchant Finance PLC has taken action to rectify the identified deficiencies and significant improvement has been made on the implementation of the sanctions screening process in the company, the CBSL said. Ideal Finance Limited was also fined by CBSL for reasons similar to that of People’s Merchant Finance PLC where it fell short in complying with the customer due diligence rules and failed to implement systems and procedures to maintain a complete list of persons and entities designated under the United Nations Regulations No.1 of 2012. The entity was fined a sum of Rs.500, 000 which was imposed on 12 July 2021.

Meanwhile, Seylan Bank PLC was fined a sum of Rs.500, 000 on 12 August 2021 for the non-compliance of customer due diligence rules and also for failing to establish and maintain procedures and systems to ensure the process of monitoring and implementing proper risk controls and mitigation measures. 

The CBSL pointed out that the bank had failed to fully comply with a suspension of transaction order issued by the FIU under the FTRA by neglecting to include banking relationships maintained with an individual subject to the FIU suspension order. 

However, the regulator stated the bank has since rectified the omission and has assured its commitment to prevent any reoccurrence of such errors.