NatWest/FCA: action against money laundering is overdue

On one level it makes no sense. An arm of the British state is using another arm of the British state to seek a fine from a bank majority-owned by the British state. On another level, it is logical for the Financial Conduct Authority to bring a criminal case against NatWest. Most Britons with any knowledge of money laundering assume the UK is rife with the activity. It is about time regulators tried to make an example of someone.

Should investors care that a client deposited £264m in cash that NatWest systems allegedly failed to “adequately monitor and scrutinise”? The unhelpful answer is that it depends what comes out in court. But with shares barely deflected by the news, all the risks are on the downside.

The object lesson is Danske Bank. In 2018, analysts initially anticipated little damage from allegations that the Nordic lender had been laundering the proceeds of Russian corruption. Instead, the accusations cost the chairman and chief executive their jobs and may yet cost Danske billions in fines or settlements.

No one is currently accusing NatWest of links to the notorious Russian Laundromat, in which payments worth €200bn were implicated. The focus of the FCA’s ire appears to be alleged compliance failures over deposits at defunct Bradford gold dealer Fowler Oldfield between 2011 and 2016.

The regulator has presumably chosen a case it has a reasonable chance of winning. This is its first-ever criminal prosecution under a 2007 anti-money laundering law. A big, complex matter might not suit.

Even so, regulatory actions can have heavy impacts that are hard to quantify in advance. Number-hugging investors can mistakenly discount these altogether.

The other conclusion is that a UK bank is never more than 6ft from a legacy issue. NatWest has drained the deep toxic asset pool created by its noughties overexpansion. It has changed its name and shouldered conduct liabilities of almost $10bn for UK payment protection insurance and US mortgage-backed securities. Yet the past still dogs the bank, not least in a 60 per cent shareholding the government has no immediate prospect of offloading.

Meanwhile, the money-go-round of suspect transactions routed through London will continue, underpinning demand for high-end houses, art and limousines. It will take more than the FCA’s case against NatWest to stop it spinning.

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