FSA bares teeth in fight against financial crime

They ought to have known better, quite frankly. The revelation that Royal Bank of Scotland has been given a £5.6m slap on the wrist by regulator the Financial Services Authority for anti-terror failings is the latest in a long string of humiliation for the company.

The Financial Services Authority said the fine was the biggest yet for breaking the rules on financial crime. It is also the first fine to be imposed under money laundering rules that were introduced three years ago. It relates to the period between December 2007 and December 2008 when RBS failed to check if customers were on sanctions lists. This failure in risk management had, the FSA said, had led to an "unacceptable risk" of it facilitating terrorist financing.

The failings of the bank, which also involved subsidiaries NatWest, Ulster Bank, and Coutts & Co, led red top newspaper The Sun to publish the headline “Terrorists could bank with RBS”. 

To its credit, RBS acknowledged its failings – had it not, the fine would have been bumped up to £8m, the FSA said -- and said it was improving its systems.

Margaret Cole, the FSA's director of enforcement and financial crime, has a point when she says that  the involvement of UK financial institutions in providing funds, economic resources or financial services to individuals on the sanctions list “undermines the integrity of the UK's financial services sector.”

But it’s worth pointing out that both RBS and the FSA insist there is no evidence that RBS had been breached — and unwittingly financed terrorist attacks. Of course, from a reputation management perspective, this latest onslaught of damage has already been done.

One thing is for sure; the fine is a huge embarrassment to a bank still desperately trying to claw back public support after its monster £20 billion bailout in October 2008, which in one fail and humiliating swoop saw the Government take a 60% stake in the financial institution.

And the fine will do little for the banking sector as a whole, still reeling from the credit crunch and on a charm offensive to score much needed brownie points among consumers.

Accountants in practice will no doubt have a modicum of sympathy for the bank, given their own exposure to the UK’s money laundering rules and regs. But the case certainly throws risk management once again firmly under the spotlight. Even though the bank may choose to blame individuals no longer in its employment, there are important lessons to be heeded.