FSA fines Abbey a record £2.3m

Penalty follows bank's failure to implement new beefed-up rules to combat money laundering
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The Independent Online

Abbey National, the high street bank struggling to reinvigorate itself, was yesterday hit with a record £2.3m fine by the Financial Services Authority.

Most of the penalty related to Abbey's inadequate money laundering controls.

The bank was also fined for separate failings in its asset management business, which had caused several customers to lose money.

The City watchdog said £2m of the fine related to the flouting by Abbey of new, strengthened regulations to fight money laundering. These were introduced after the 11 September attacks and after it emerged that money stolen by Sani Abacha, the late Nigerian dictator, had passed through UK banks.

Abbey did not monitor thoroughly the introduction of new money laundering rules between December 2001 and April 2003, the FSA said.

Abbey allowed individual branches to certify themselves as being in compliance with the rules. However, when Abbey launched a review of the system in November 2002, it found that a third of the branches were not checking customers' identification properly. Abbey was also taking too long in reporting suspicious customers to the National Criminal Intelligence Service, delaying the process by up to four months in some cases, the FSA said.

The penalty is the highest so far from the watchdog for poor money-laundering controls and second in all FSA fines only to the £4m given to CSFB last year for tax-related failings.

Abbey's fine follows a £1.25m penalty for Northern Bank in August and £750,000 last year for Royal Bank of Scotland, the UK's second-largest bank, for similar anti-money-laundering control failings.

RBS's chief executive, Fred Goodwin, last week condemned the sums the FSA has imposed on banks for their slips in not following the money laundering regulations. "Many of the penalties are so draconian that you might as well report every transaction," Mr Goodwin said.

Abbey, which is attempting to revamp its business round by "turning banking on its head" after first-half losses of £144m, said it would not appeal against the fine. Its shares fell 11.25p to 524.5p yesterday.

The bank said: "There was no evidence of money laundering taking place although the company fully acknowledges that its methods for checking customer identification were inadequate, and that the company was not reporting suspicious activity on a timely basis."

Andrew Procter, FSA director of enforcement, said the fine had been mitigated by the fact that Abbey had taken "prompt and effective remedial action" to beef up its money laundering rules. But Mr Procter criticised the bank's previous record, saying: "The failure of Abbey National to monitor compliance with FSA money laundering rules demonstrated a marked lack of regard for its regulatory obligations. The failings also reflected the fact that the overall control environment, particularly compliance monitoring, has been weak across the group over a prolonged period."

Of the £2.3m fine, £320,000 related to problems with its asset management arm. One fund which had retail customers invested in it breached compliance procedures. Customers have received £300,000 in compensation, Abbey said.

Abbey has been through a very rocky patch in the past two years, plunging to a loss of nearly £1bn last year, after it revealed a blackhole in its wholesale banking division and a weak performance in some core areas such as mortgages.

The problems with money laundering controls were in its retail banking business - the key area the bank wants to focus on in the future.

Abbey admitted the wide range of difficulties it has had might have prompted it to take its eye off the ball on money laundering.

"The broad range of business, operational and risk challenges arising during this period have already been well documented.

"Abbey is fully committed to putting these right," the bank said.

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