The Financial Conduct Authority (FCA) has fined Nationwide Building Society £44.1 million for what it described as “serious and systemic” weaknesses in its anti-money laundering (AML) controls. The failings spanned more than four years, from October 2016 to July 2021, and increased the risk of financial crime.
Gaps in Customer Checks and Risk Assessment
The FCA found that Nationwide did not have effective systems to refresh customer due diligence or reassess financial crime risk. An interim risk assessment process automatically classified most customers as standard risk, limiting the firm’s ability to identify higher-risk relationships.
Although Nationwide planned to upgrade its systems, implementation was delayed until 2019 and enhanced data was not fully integrated until 2021. As a result, the firm was unable to maintain an accurate and up-to-date understanding of its customer base.
The regulator also found that Nationwide failed to carry out periodic and event-driven reviews for a large number of customers, despite internal policies requiring them. This weakened transaction monitoring and reduced the firm’s ability to detect unusual activity.
Transaction Monitoring Systems Fell Short
Nationwide’s transaction monitoring controls were described as “inadequate and ineffective” for much of the period. Monitoring rules were applied uniformly across personal current accounts, without taking account of individual customer risk profiles.
Internal reviews from 2017 onwards highlighted problems with data quality and rule design. External consultants assessed Nationwide’s monitoring maturity as stage two out of five, placing it behind peers.
While improvements were made, by July 2021 the system still only partially covered money laundering risks. Alerts were generated monthly rather than in near real time, allowing suspicious funds to move before investigation.
Business Activity Through Personal Accounts
The FCA also criticised Nationwide for allowing personal current accounts to be used for business purposes, despite contractual prohibitions. This affected thousands of accounts and introduced additional risk, as controls were not calibrated for business activity.
During the pandemic, more than £64 million in furlough payments were paid into personal accounts. In one case, a customer received £27 million in fraudulent claims, with £800,000 unrecoverable after funds were transferred overseas.
Penalty and Remediation
The fine reflects breaches of Principle 3 and senior management requirements to maintain effective systems and controls. The FCA reduced the original penalty of £62.9 million by 30 per cent for early settlement.
Nationwide has since invested in a significant financial crime transformation programme and cooperated fully with the investigation. The FCA confirmed that its findings do not criticise any individual.
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