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The UK’s financial conduct watchdog has fined Nationwide £44mn for “failings” in its financial crime controls over a period of nearly five years, landing the lender its biggest regulatory penalty.
Britain’s biggest building society did not address “unacceptable” known deficiencies in its systems for preventing financial crime among its 10mn personal current account customers from October 2016 to July 2021, the Financial Conduct Authority said on Friday.
The regulator said the failings were “exacerbated” by the fact that Nationwide knew some of its customers were using their personal accounts for business purposes — exposing it to fraudulent claims on the government’s pandemic furlough scheme that launched in 2020.
In one case, Nationwide failed to detect £27.3mn in fraudulent Covid-19 furlough payments flowing through a customer’s personal account, including £26mn deposited over eight days.
In this “egregious” case, the customer transferred £800,000 of the fraudulent payments that was never recovered, the FCA said. The rest was recouped, but only thanks to HM Revenue & Customs, which identified the fraud several weeks faster than Nationwide.
“Nationwide failed to get a proper grip of the financial crime risks lurking within its customer base,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.
“It took too long to address its flawed systems and weak controls, meaning red flags were missed with serious consequences,” Chambers said.
The penalty marks the largest-ever enforcement fine Nationwide has received. The lender would have been fined £63mn, but was granted a discount after “it agreed to resolve these matters”, the FCA said.
The building society was one of the few large UK lenders to stay out of trouble in the 2008 financial crisis and it has since mainly kept clear of the large fines and reputational damage suffered by rival lenders.
The FCA said it told Nationwide about weaknesses in its controls as early as 2015 and these were identified by an internal review at the building society in 2016. But they were not fully addressed until almost five years later.
The lender decided in 2017 to “temporarily tolerate” these risks while it was preparing to launch its own business banking service, the FCA said, adding it was “inappropriate” for this to last two-and-a-half years until it decided against the business service launch in 2020.
In a statement, Nationwide said it had identified the issues “through its own reviews, and voluntarily brought them to the attention of the FCA”.
“[Nationwide] co-operated fully with the FCA investigation, and we are sorry that our controls during the period fell below the high standards we expect,” the building society said, adding that it “did not believe that these controls issues caused financial losses to any of our customers”.
The watchdog said Nationwide had “invested significantly in remedial steps and enhancing its financial crime framework” since 2021.
The lender is owned by its 16mn members, making it the world’s largest building society. At the start of this year it had £261bn retail deposits, giving it more than 12 per cent market share, up from 7 per cent in 2016.
Last year, it acquired Virgin Money for £2.9bn, which moved it into business banking for the first time as well as strengthening its position in the UK mortgage market.
In July, the FCA fined Barclays £42mn for failing to manage money laundering risk, while online bank Monzo was ordered to pay £21mn for repeatedly breaching rules against opening accounts for “high-risk” customers who provided “obviously implausible information”.
Additional reporting by Laith Al-Khalaf in London
