Nationwide Building Society, which also offers general insurance and protection products alongside its core retail banking services, has been fined £44 million by the Financial Conduct Authority (FCA) for failings in its anti-financial crime systems and controls between October 2016 and July 2021.
According to the FCA, Nationwide did not have effective frameworks in place to keep customer due diligence and risk assessments up to date for all personal current account holders during the period. The regulator also found weaknesses in how the society monitored customer transactions for potential financial crime.
Nationwide was aware that some customers were using personal current accounts for business activity, contrary to its terms and conditions. At the time, the society did not offer business current accounts and therefore lacked appropriate processes to manage the financial crime risks arising from that business use.
This meant Nationwide could not adequately identify, assess, monitor or manage money laundering risks among its personal current account customers, the FCA said. It also did not have an accurate view of which customers posed a higher financial crime risk.
In one case highlighted by the regulator, Nationwide failed to detect a customer using personal current accounts to receive fraudulent Covid furlough payments. The customer received 24 payments totalling £27.3 million over 13 months, with £26.01 million deposited over just 8 days, and while HM Revenue & Customs recovered £26.5 million, about £800,000 remains unrecovered.
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Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said 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.”
The FCA noted that Nationwide was aware of weaknesses in its systems and controls and had started work to improve them. However, the authority said the firm did not remedy those deficiencies quickly enough over the period in question.
Nationwide has since launched a large-scale financial crime transformation programme, which began in July 2021, aimed at strengthening its anti-financial crime capabilities and addressing the issues identified by the FCA.
The action against Nationwide comes as the FCA is also adjusting parts of the wider regulatory framework for insurers and intermediaries, including moves to “simplify insurance regulation and reduce compliance costs” now that Consumer Duty is in place.
Under its latest changes, the regulator is cutting certain data returns and giving firms more discretion over product reviews and staff training requirements, while keeping protections for smaller commercial customers, which places greater emphasis on firms’ own systems and controls rather than prescriptive rules.
