According to the regulator, between 2007 and 2010 staff at the bank, which accepts new customers only if they have at least GBP1million to invest, failed to check the source of funds when prospective clients tried to open accounts.
It also failed to check up on any intelligence about its existing or prospective clients and had not kept information on those clients up to date. As a result, money could have come from high-risk countries including Libya, Syria and Zimbabwe, it is feared.
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The regulator criticized the 320-year-old private bank for taking ‘an unacceptable risk of handling the proceeds of crime’ and said the failings were ‘serious’, ‘systemic’ and allowed to carry on for almost three years.
"Coutts’ failings were significant, widespread and unacceptable," Tracey McDermott, acting director of enforcement and financial crime at the FSA, said in a statement. "Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures."
High risk clients represented 1% of Coutts’ client base over the review period and were labeled as such based on their professions, political standings, reputations, and their countries of origin, particularly those jurisdiction’s financial controls.
FSA said that it would slapped a fine of GBP12.5m had Coutts not agreed to settle at an early stage.
Coutts, which accepted the FSA’s findings, said that no money laundering took place between December 2007 and November 2010.
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By GlobalDataRory Tapner, chief executive of the wealth division of RBS, said they were disappointed with the results of the probe. "Since the FSA first raised its concerns, we have implemented a number of improvements to prevent any recurrence of these failings. Regulatory reforms continue apace," he added.
The fine is Coutts’ second dressing down by the City watchdog in a matter of months. In November, it was fined GBP6.3 million for mis-selling savings products linked to the collapsed US insurer AIG. In that instance it also paid compensation to clients.
The news is bound to concern the bank’s high profile, wealthy clients and may prompt a section of the bank’s current and potential customers to reassess their relationship with the bank, WealthInsight opines.
However, the banks brand image may not take any severe beating immediately but how Coutts respond to the fine will determine the longer term impact on brand.
In total RBS has been fined more than GBP25 million by the FSA since its government bailout – the most of any UK bank.
