Nationwide fined £44 million by watchdog after missing Covid fraud ‘red flags’

Nationwide Building Society has been fined £44 million by the UK’s financial watchdog for failures to handle financial crime risks linked to its customers, including cases of Covid fraud.

The building society had inadequate anti-financial crime systems and controls between October 2016 and July 2021, the Financial Conduct Authority (FCA) said.

It found Nationwide was aware that some of its personal current account customers were using their accounts for business activity, but did not have the right controls to manage the resulting financial risks.

This meant it was unable to spot and manage money laundering risks and it did not have an accurate assessment of customers who showed a higher risk of financial crime.

In one serious case, Nationwide missed opportunities to spot a customer using personal current accounts to receive £27.3 million worth of fraudulent Covid furlough payments, the FCA said.

The customer received 24 payments over 13 months, with £26 million of this deposited over eight days.

HMRC recovered £26.5 million but about £800,000 remains unrecovered.

A report published on Tuesday found that fraud and error linked to Covid-19 support programmes – including furlough and bounce-back loans – cost taxpayers almost £11 billion.

Most of the shortfall is “now beyond recovery”, authors of the report by the Covid counter fraud commissioner found.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “Nationwide failed to get a proper grip of the financial crime risks lurking within its customer base.

“It took too long to address its flawed systems and weak controls, meaning red flags were missed with serious consequences.

“Building societies and banks have a key role in the fight against financial crime. Firms must remain vigilant in this fight.”

Nationwide’s fine was reduced from nearly £63 million to £44 million due to it agreeing to resolve the issues identified in the FCA’s investigation.

The building society launched a large-scale financial crime transformation programme in July 2021, the regulator said.

A spokesman for Nationwide said it identified the weaknesses in its controls and “voluntarily brought them to the attention of the FCA”.

“The society cooperated fully with the FCA investigation, and we are sorry that our controls during the period fell below the high standards we expect,” it said.

“Since 2021, Nationwide has invested significantly in all aspects of its economic crime control framework in order to ensure our systems are robust.

“We do not believe that these controls issues caused financial loss to any of our customers and remain committed to preventing economic crime and protecting our customers and the wider UK economy from fraud.”

It marks the latest investigation from the FCA which has fined rival lenders Barclays and Monzo this year over weaknesses in their financial crime controls.

Digital bank Monzo faced a penalty of £21.1 million for anti-financial crime failures between October 2018 and August 2020.

This included allowing customers to register accounts to “implausible” addresses such as Buckingham Palace and No 10 Downing Street.

Barclays was fined £42 million for the “poor handling” of money laundering risks including relating to providing banking services to Stunt & Co, the firm run by socialite James Stunt.