RBS handed FSA’s biggest fine for lapses over money laundering rules (August 2010)

- by Kelly Richards

RBS failed to put the right checks and systems in place to ensure that customers were thoroughly audited. Cashfloat a company providing payday loans UK looks at UK financial misconduct.

RBS fined biggest fine ever.

Encouraging Competition in the UK Economy

In the UK, having a healthy economy and financial market is essential. When it comes to ensuring that businesses can thrive, this is vital. But, it’s also important for customers to have a broad range of choice when it comes to choosing financial products. After all, choice encourages competition. As such, this ensures that the economy can thrive.

These principles are primarily understood by many companies. Some larger corporations and banks have taken to ignoring these critical factors for growth. All UK financial service providers have to ensure that they are investing and growing in a responsible way. They must ensure that they are managing risks and ensuring that their business activity can be underpinned.

Due to the importance of the financial service industry within the UK, it is deemed essential for financial providers to offer transparent advice. They must have the right checks and balances in place. All businesses must strive to have risk management controls within the company. What’s more, they should seek to ensure that they are operating in an integral way.

While many financial companies are striving for this, there have been a series of misconducts within the UK. The UK financial market, over the course of the last ten years, has been blighted by misconduct by banks.

Of course, not all companies are the same. There are some financial service providers who are keen to ensure that they are offering an honest service. After all, this is integral to the UK market.

But, in the case of RBS, this was not the situation. Here, we will look at the case of RBS in more depth.

RBS and Financial Misconduct in the UK

August 2010 saw the FSA launch an investigation into the banking giant, RBS. The FSA fined the bank £5.6 million. This was done as a result of money laundering issues. RBS had failed to put the right checks and systems in place to ensure that customers were thoroughly audited. Screening customers is essential for any bank. RBS had ignored these vital checks. As a result, it left the bank susceptible to risk. These risks included money laundering issues and the financing of terrorist activity.

During 2010, this was one of the largest fines that the FSA had issued for this type of offence. The FSA had taken a firm approach to dealing with banks and their irregularities. As such, this meant that RBS was fined the giant sum to ensure that they learned from the mistakes that they had made.

Following the investigation, RBS ensured that it implemented the right procedures. As it was seen to be compliant and cooperative with the FSA, the original fine of £8 million was subject to a 30% reduction. This cooperation discount is applicable to all businesses that comply with the FSA’s investigations. The original sum was set at £8 million.

2007 to 2010: What Happened at RBS?

RBS is a well-known high street bank. It currently ranks at number 13 in the world banking index. But, during the period between 2007 and 2010, RBS processed a large number of foreign payments. What’s more, they failed to screen these payments and their customers. This meant that the payments received by the bank could have been used for nefarious activities.

These checks are essential to the stability of the financial sector. But, it also put the HM Treasury at risk. RBS took a large volume of international payments. But, they failed to check the payees against the HM Treasury sanctions list. As per government rules, providing financial support and services to people on the sanctions list could have had a detrimental impact on the economy. But, it would have left RBS wide open to threats of money laundering crimes.

RBS and Mitigating Risks

The HM Treasury drew up a list of individuals who had been found to be using UK services for terrorism purposes. As a result of the lack of control within RBS, the bank was found to have been guilty of facilitating funds in an improper way. While it was found that RBS had not supported terrorist activity, the lack of control within the bank could have had a severe impact. As such, the penalty was imposed.

One of the principles of the FSA is to ensure that integrity is upheld within the market. This means that banks have to implement risk management systems. Banks, like RBS, have to operate on a basis that is within the guidelines of market conduct. By providing unchecked funds and accounts they left themselves wide open to the threat of money laundering.

Failing to screen customers is a serious offence in the eyes of the FSA. RBS accepted responsibility for the misdemeanor. The bank has ensured that stringent checks are now in place within their internal systems.

Preventing Issues of Money Laundering: The FSA’s Role

When it comes to issues surrounding money laundering rules, the FSA is keen to act on complaints. The FSA, as a general rule of thumb, provides information to companies on how they expect them to behave within the financial sector. As a result of this, the guidelines are somewhat clear. When the FSA acts upon an investigation, they will impose a fine if the bank is found to be in breach or operating on a basis of misconduct.

But, while these fines are significant, there are some issues surrounding the FSA’s role as a regulator. The FSA, it is worth mentioning, is now the FCA and the PRA. The reformation of the regulatory body was introduced as a result of issues surrounding the efficiency of the original FSA.

Preventative measures, it seems, are not the FSA’s forte. One problem that arises is that FSA does not provide a clear framework for businesses and banks to adhere too. While it espouses a set of principles, it does not act in an advisory role. On the contrary, the FSA seems to take action only after a complaint is made. What’s more, they often operate on a reactive basis. These reactive measures will never see fit to eradicate issues of misconduct within the financial sector.

About The Author
Kelly Richards
Kelly Richards is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog's creation. Kelly's passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition. Kelly's insights come from her knowledge gained while completing her degree in Economics and Finance as well as from the people she meets around the world. Her motto is: Everyone you meet has something valuable to teach you, so meet as many people as you can!
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