RBS Fined $8.9M by U.K. FSA - Analyst Blog

Royal Bank of Scotland Group plc (RBS) has been fined £5.6 million ($8.9 million) by the U.K. Financial Services Authority (FSA). The fine follows the company’s failure to possess adequate systems and controls for preventing the violation of the U.K. financial sanctions. However, as the claims are settled by RBS early, a 30% reduction in the fine amount was granted to the company.

 

Firms in the U.K. are barred from offering financial services to persons included in the HM Treasury sanctions list. According to the Money Laundering Regulations 2007, firms are supposed to implement policies to avert funds or financial services to those mentioned in the sanction list. This is primarily to ensure the prevention of terrorist financing.

 

According to the charges made by the FSA, certain RBS units – RBS plc, NatWest, Ulster Bank and Coutts & Co. – failed to monitor their customers and payments, both made and received, against the sanction list during the period December 15, 2007 to December 31, 2008. The slackening posed a security threat to not just RBS but the entire U.K. financial sector.

 

This is the first fine imposed by the FSA under the regulations. UBS AG (UBS) was fined £8 million in 2009 for not possessing adequate system controls.

 

We believe that such fines are not only bad for the banks’ reputation but are also a bump in the company’s financials. The financial crisis has already impacted RBS significantly. The company was, however, rescued through government bailouts. The company is currently implementing its restructuring plans and has announced the sale of 318 branches to Banco Santander SA (STD) yesterday. A part of its RBS Sempra operations has already been sold to JPMorgan Chase & Co. (JPM) recently.

 

RBS is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. We also maintain a long-term Neutral rating on the stock.