FCA Fines Nationwide £44 Million for Anti-Financial Crime Control Failures

FCA Imposes Significant Fine on Nationwide

The Financial Conduct Authority (FCA) has levied a substantial fine of £44 million against Nationwide Building Society for significant failings in its anti-financial crime systems and controls. The deficiencies were identified over a period spanning from October 2016 to July 2021. This regulatory action underscores the FCA's commitment to ensuring financial institutions maintain robust defenses against illicit financial activities.

Systemic Weaknesses Identified

The FCA's investigation revealed that Nationwide had ineffective systems for keeping customer due diligence (CDD) and risk assessments up to date for all personal current account holders. Furthermore, there were weaknesses in how the society monitored customer transactions for potential financial crime. A key issue highlighted was Nationwide's awareness that some customers were using personal accounts for business activity, contrary to its terms and conditions. At the time, Nationwide did not offer business current accounts, and consequently, lacked appropriate processes to manage the financial crime risks arising from such business use. This meant the building society could not adequately identify, assess, monitor, or manage money laundering risks among its personal current account customers, nor did it have an accurate view of which customers posed a higher financial crime risk.

Missed Red Flags and Fraudulent Activity

A particularly serious consequence of these control failures was Nationwide's inability to detect a customer using personal current accounts to receive fraudulent Covid furlough payments. This customer received 24 payments totaling £27.3 million over 13 months, with a significant portion of £26.01 million deposited within just eight days. While HM Revenue & Customs (HMRC) managed to recover £26.5 million, approximately £800,000 remains unrecovered, leaving taxpayers out of pocket.

FCA and Nationwide Statements

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, stated that Nationwide 'failed to get a proper grip of the financial crime risks lurking within its customer base' and 'took too long to address its flawed systems and weak controls, meaning red flags were missed with serious consequences.' She emphasized the critical role banks and building societies play in combating financial crime.

Nationwide acknowledged the issues, stating they were identified through its own reviews and voluntarily brought to the FCA's attention, with full cooperation during the investigation. A spokesperson for Nationwide expressed regret, saying, 'we are sorry that our controls during the period fell below the high standards we expect.' The building society also confirmed that it has since invested significantly in its economic crime control framework.

Penalty and Remedial Actions

The original fine considered by the FCA would have been approximately £63 million. However, Nationwide received a 30% discount for agreeing to resolve the matter. Following the period of failings, Nationwide commenced a large-scale financial crime transformation program in July 2021 to address the identified weaknesses and enhance its controls. This fine is part of a broader effort by the FCA, which has imposed 13 fines totaling over £300 million on banks for anti-money laundering systems and controls failings since 2021.