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Last updated: August 3, 2010 8:06 pm
Royal Bank of Scotland has been fined £5.6m – one of the largest penalties ever imposed by the financial regulator – for failing to ensure that funds were not transferred to terrorist groups or other people facing Treasury sanctions.
The fine is the latest in a string of big penalties handed out by the Financial Services Authority as it seeks to take a tougher line with institutions that fail to comply with its objectives.
It follows the record £33m fine given to JPMorgan’s securities arm in June for the US bank’s failure to protect billions of dollars of client money by keeping it in segregated accounts. The FSA also fined the Swiss bank UBS £8m at the end of last year for having inadequate system controls.
RBS was punished for having insufficient checks in place to identify payment transactions that could potentially have involved those on the Treasury’s sanctions list.
This resulted in an “unacceptable risk” that RBS could have facilitated payments to terrorist organisations.
The Treasury sanctions list includes groups such as al-Qaeda and the Taliban, as well as a number of Middle Eastern and African companies and a series of people in countries such as Iran, Iraq, North Korea and the Democratic Republic of Congo.
Banks are responsible for screening customers who are transferring money or using other financial services to ensure they are not under sanction.
RBS and its subsidiary businesses, including NatWest, Ulster Bank and Coutts, did not have sufficiently sophisticated IT systems in place to flag up those that might be on the sanctions list.
Names that did not match exactly with those on the Treasury’s list or that used an initial rather than a full name, for instance, might have slipped through the checks, meaning that a relatively small number of transactions were thrown up for further investigation.
While there was no evidence that transactions between sanctioned organisations took place, the FSA’s verdict highlights the kind of unchecked behaviour that critics say permeated RBS under the leadership of Sir Fred Goodwin, its former chief executive.
The fine relates to payments made between December 2007 and December 2008.
The issue was spotted by the bank’s new management team, which took over at the end of 2008 following the government bail-out, and was flagged to the regulator at that time.
RBS qualified for a 30 per cent reduction in the fine for agreeing to settle. Without this discount the fine would have been £8m.
“The scale of the fine shows how seriously the FSA takes this issue and should act as a warning to other firms to ensure that they have adequate screening procedures,” said Margaret Cole, director of enforcement and financial crime at the regulator.
The fine was the eighth-largest to be issued by the FSA and the biggest in the specific area of fighting financial crime.
Nathan Bostock, head of restructuring and risk at RBS, said the FSA investigation “confirmed the deficiencies we had identified and brought to their attention, in our policies, procedures and controls during the year to December 2008, though the FSA noted that it did not consider this misconduct deliberate or reckless”.
He added that the bank had since taken action to remedy these issues and implement more robust sanctions checks.
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