NatWest faces FCA sanctions over reported money laundering

Dr Angela Gallo, Lecturer in Finance comments on possible sanctions for NatWest following failure to comply with money laundering laws

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.”

Further information

Conduct Costs Project

Centre for Banking Research