NatWest faces FCA sanctions over reported money laundering

The Financial Conduct Authority (FCA) has begun criminal proceedings against NatWest for failing to comply of anti-money laundering regulations.

Large amounts of money totalling £365 million were allegedly transferred into a customer account across a five-year period without the mandatory scrutiny and checks under financial regulations.

It is the latest episode of compliance issues in the sector, as highlighted by the Conduct Costs Project report which was released by the Centre for Banking Research at the Business School (formerly Cass) last year.

Dr Angela Gallo, Lecturer in Finance at the Business School and co-author of the report said issues like this need to be taken more seriously by the banking sector and general public:

“The most concerning aspect in all of this is the timid market reaction to news of suspected money laundering from such a large, long-standing and well-renowned UK bank.

“Even if we don’t yet know about the size of financial penalty or sanctions to be imposed, we have learnt from previous cases that this can amount to billions of pounds.

“Has the public became accustomed to bank misconduct? One key aspect people should take into consideration is that when banks behave badly and get fined, it reduces their ability to lend, which has direct consequences on our ability to borrow.

“Indeed, the Bank of England has estimated that $150 billion in fines levied on global banks translates into more than $3 trillion of reduced lending capacity to the real economy.  

“In NatWest’s case, the misconduct appears to relate back to between 2011 and 2016. A lot of work has since been done by regulators and banks, including NatWest themselves, to improve controls on financial crimes, but the legacy of past misdemeanours still looms large and remains prevalent today.

“The Centre for Banking Research’s Conduct Costs Project provides an overview of misconduct in major international banks since the 2008 financial crisis”.

Dr Gallo also believes the pandemic has provided additional challenges to regulators and controls, with remote working proving a hindrance to monitoring measures.

“Can we expect bank misconduct to decrease in the near future? I would say yes, given large investments in monitoring and a renewed push from regulators.

“However, the pandemic is a gamechanger in this regard because more and more people, including regulators, are working from home. A recent publication by BIS suggests internal monitoring and external supervision has become more of a challenge, highlighting that risks of money laundering are set to be exacerbated by the current pandemic.

“Banks and regulators need to adapt monitoring mechanisms to suit a remote working environment – at least in the short term.”

Roger McCormick, Senior Visiting Fellow at the Business School and former Director of the Conduct Costs Project added:

“We mustn’t jump to conclusions before we have more facts. However, early reports about the case raise some interesting questions.

“So far, we are unclear as to how many instalments the £250 million cash was deposited in and the period in which this occurred. It is also important to know why bank staff weren’t alerted by such significant deposits, and who exactly would have known about them.

"As further details emerge, whatever the final outcome, it is important that other financial market players are able to learn lessons from what happened in this case.

“The allegations do show that post-Global Financial Crisis conduct issues for banks remain a concern, even if the level of conduct costs has been falling. Recent developments, from changing stakeholder expectations to the impact of the pandemic, will pose a fresh set of conduct challenges.

"As is often the case, there has been quite a long period between the alleged misconduct and bringing it to public attention. We may well be told at some point that remedial steps have now been taken but, if that is the case, we need to know what they are and why they are expected to be effective."

All quotes can be attributed to Dr Angela Gallo, Lecturer in Finance and Roger McCormick, Senior Visiting Fellow at the Business School (formerly Cass).

Read more about the Conduct Costs Project.

Find out more about the Centre for Banking Research at the Business School (formerly Cass).