Why Did Nationwide Get Hit with a £44 Million Fine for Poor Crime Controls?

Nationwide Building Society has been fined £44 million by the Financial Conduct Authority (FCA) for inadequate systems in detecting financial crime from 2016 to 2021. The FCA found that the society's ineffective risk assessment and monitoring processes allowed significant fraudulent transactions, including £26 million in Covid furlough payments, to go undetected in a single customer account.

Last updated: 19 October 2023 (BST)

What’s happening now

Nationwide's recent fine highlights serious gaps in its financial crime prevention measures, as identified by the FCA. The building society had failed to monitor personal accounts being used for business activities, resulting in substantial risks of money laundering going unchecked. This incident underscores the ongoing challenges financial institutions face in ensuring compliance with regulatory standards for anti-money laundering (AML) and fraud prevention.

Key takeaways

Nationwide has been fined £44 million for failing to detect financial crime effectively.
The FCA highlighted significant lapses in risk assessment and monitoring processes.
£26 million in fraudulent Covid furlough payments went undetected in one customer's account.
Nationwide claimed to have invested in improving its crime control systems since 2021.
The FCA noted that red flags indicating financial crime were missed due to flawed controls.

Timeline: how we got here

The following timeline outlines key events leading to Nationwide's fine:

2016–2021: The period during which Nationwide had ineffective systems for detecting financial crime.
August 2021: Nationwide began enhancing its crime control systems following internal reviews.
October 2023: The FCA announces a £44 million fine against Nationwide for regulatory failures.

What’s new vs what’s known

New today/this week

The FCA's announcement of the fine against Nationwide reveals the extent of the building society's regulatory failures, particularly concerning its inability to monitor customer accounts effectively. The fine serves as a warning to other financial institutions regarding the importance of robust systems to combat financial crime.

What was already established

Prior to this announcement, it was known that Nationwide had been under scrutiny for its financial crime measures. The building society had acknowledged the shortcomings and claimed to have taken steps to rectify the issues since 2021.

Impact for the UK

Consumers and households

This fine may have implications for Nationwide's consumers, as it raises concerns about the safety of financial transactions and the overall integrity of the financial system. Customers may seek reassurance regarding the effectiveness of the bank's measures to prevent fraud and protect their assets.

Businesses and jobs

For businesses using Nationwide, the lack of proper monitoring of financial activities could pose risks if fraudulent transactions are not detected promptly. As the building society has not offered business accounts during the period in question, the direct impact on business clients may be limited, but it reflects broader concerns about financial institutions' capabilities in managing risk.

Policy and regulation

The FCA's actions may prompt further regulatory scrutiny across the financial sector in the UK. Other institutions could face increased pressure to enhance their financial crime prevention measures to avoid similar penalties. This situation will likely lead to more stringent compliance requirements and audits moving forward.

Numbers that matter

£44 million: The fine imposed on Nationwide by the FCA.
£26 million: The amount of fraudulent Covid furlough payments detected in one customer account.
£27.3 million: Total amount received in illegitimate furlough payments by the customer over 13 months, most of which has been recovered by the tax authority.

Definitions and jargon buster

Financial Conduct Authority (FCA): The regulatory body responsible for overseeing financial institutions in the UK and ensuring they adhere to proper operational standards.
Anti-money laundering (AML): A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate.
Covid furlough payments: Financial support provided by the UK government to employers to retain employees during the pandemic.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, Nationwide will likely focus on reinforcing its compliance framework and addressing any remaining vulnerabilities in its financial crime prevention systems. Customers may expect updates from the building society on new measures being implemented.

Medium term (1–6 months)

Over the next few months, Nationwide will need to demonstrate improvements in its systems to reassure regulators and customers alike. The FCA may increase scrutiny on their operations during this period, assessing how effectively the building society has implemented necessary changes.

Signals to watch

Updates from Nationwide regarding enhancements to its crime control systems.
Future FCA announcements regarding additional regulatory actions or fines against other financial institutions.
Changes to compliance requirements in the financial sector as a result of this case.

Practical guidance

Do

Stay informed about updates from your bank regarding security measures and fraud prevention.
Report any suspicious transactions to your financial institution immediately.
Review personal banking practices to ensure compliance with regulations.

Don’t

Ignore red flags or unusual activity in your accounts.
Assume that your bank's systems are infallible; stay vigilant.
Share personal banking information with unverified sources.

Checklist

Review your account statements regularly for discrepancies.
Ensure that your contact information with your bank is updated.
Enable transaction alerts to monitor account activity in real-time.
Educate yourself on the latest scams targeting consumers.
Consider using additional security measures, such as two-factor authentication.

Risks, caveats, and uncertainties

While Nationwide has committed to improving its systems, uncertainties remain regarding the effectiveness of these changes and whether they will fully prevent future occurrences of financial crime. Additionally, the recovery of fraudulent payments may not be complete, and ongoing investigations could reveal further issues within the banking sector.

Bottom line

The £44 million fine against Nationwide serves as a critical reminder of the importance of robust financial crime prevention systems in the UK banking sector. As the building society works to rectify its shortcomings, consumers should remain vigilant about their accounts and the measures in place to protect them against fraud.

FAQs

What led to Nationwide's fine by the FCA?

Nationwide was fined due to ineffective systems for detecting financial crime, specifically failing to monitor high-risk transactions adequately.

How much was Nationwide fined?

The Financial Conduct Authority imposed a fine of £44 million on Nationwide for its regulatory failures.

What steps is Nationwide taking to improve its systems?

Since 2021, Nationwide has invested significantly in enhancing its crime control systems to prevent financial crime and protect customers.