UK Central Bank and Ripple

The Bank of England has come under fire for working with a fintech startup that was fined $700,000 by a US regulator for breaking banking secrecy laws.

Players in the fintech field have accused the central bank of appearing not to have conducted proper due diligence when selecting its partners after it emerged that Ripple, the startup chosen by the Bank of England to help research new blockchain technology, was fined for “willfully violating” several requirements of the Bank Secrecy Act.

Peter Randall, the founder and CEO of rival startup SETL, said: “It perplexes me that compliance officers [at the Bank of England] have clearly never Googled Ripple’s regulatory background.”

Speaking at FN’s fintech breakfast briefing on April 27, Randall said that if a chairman at a commercial bank had “done this sort of thing” he or she would be in jail. “$700,000 is not a slap on the wrist, it’s a slap on the leg,” he said.

Another fintech co-founder, who did not want to be named, described Ripple’s fine as “pretty hardcore”. They added that they were surprised the central bank had decided to work with Ripple. “There’s no shortage of fintechs with a clean record,” the person said.

Ripple, which has developed an internet-based bookkeeping system for cross-border payments, was fined $700,000 two years ago by the US Financial Crimes Enforcement Network.

It was fined for selling its virtual currency, known as XRP, without registering with the regulator and for failing to implement and maintain an adequate anti-money laundering programme to protect its products from use by money launderers or terrorist financiers.

The Bank of England declined to comment on whether it was aware of Ripple’s fine when it selected the company in April. A person familiar with the matter said that the BoE “conducts rigorous due diligence when preparing to work with any suppliers or companies". They added that Ripple was put through the standard application process, “including due diligence checks”.

A spokesman for Ripple said: “We have proactively invested in the highest compliance and risk standards and this continues to be a top priority.” He added that the 2015 ruling was in relation to a discontinued consumer product and that the size of the fine was small by industry standards.

Ripple was named as part of the Bank’s accelerator programme in March, together with artificial intelligence startup Mindbridge, and regtech business Enforcd.

Fintech evangelist Oliver Bussmann said he understood why Ripple was selected as it is the most advanced startup in this area. “They have already partnered with 30 banks and they have momentum. If I was the Bank of England, I would team up with them too,” he said.

Ripple has raised more than $90 million in capital from financial firms and has signed deals with over 75 financial institutions.

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https://www.fnlondon.com/articles/bank-of-england-criticised-for-fintech-faux-pas-20170508