Royal Bank of Scotland suffered a major embarrassment yesterday when the state-owned bank was fined a record £5.6m by the City watchdog for failing to ensure that funds were not transferred to people under Treasury sanction.
The fine, covering the period from 15 December 2007 until 31 December 2008, comes as a fresh indictment of the stewardship of the former chief executive Sir Fred Goodwin, who was in charge at the time.
The Financial Services Authority – called in by the new management – said that in that year RBS processed the largest volume of foreign payments of any UK financial institution. Because RBS and its subsidiaries NatWest, Ulster Bank and Coutts failed to adequately screen customers and the payments they made and received against the sanctions list there was "an unacceptable risk that RBS could have facilitated transactions involving sanctions targets, including terrorist financing".
The list includes terrorist groups such as al-Qa'ida and the Taliban, a number of Middle Eastern and African companies, and a string of individuals in countries including Iraq, Iran, the Democratic Republic of Congo and North Korea. The watchdog said RBS's failures constituted a threat to the integrity of Britain's financial system.
The fine means the taxpayer is subsidising lower regulatory fees for the City – proceeds from such penalties are used by the FSA to help fund its work and reduce its fees to regulated firms.
The FSA found a string of failings of systems at the bank and its subsidiaries, not least that the main software supposed to screen payments against the Treasury list during the relevant period did not work if the name of the beneficiary of a payment was presented across more than one line. While the systems and controls were the subject of reviews, such as after the bank's disastrous acquisition of ABN Amro, they failed to pick up the seriousness of the failings.
Those failings covered incoming payments to customers; sterling payments made by customers except those going to US institutions; and euro payments made by customers.
Margaret Cole, FSA director of enforcement and financial crime, said: "The involvement of UK financial institutions in providing funds, economic resources or financial services to designated persons on the sanctions list undermines the integrity of the UK's financial services sector. By failing to screen relevant customers and payments against the HM Treasury sanctions list, RBSG left itself open to the risk that it was facilitating terrorist financing. 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."
The FSA said that RBS had agreed to settle early, and so qualified for a 30 per cent discount. Had it not done this the fine would have been £8m. Nathan Bostock, RBS head of restructuring & risk, said: "We acknowledge the findings of the FSA investigation. It 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. We have taken appropriate action to remedy these issues."Reuse content