Nationwide fined £44m for financial crime control failings that enabled Covid fraud

The Financial Conduct Authority has imposed a £44m penalty on Nationwide Building Society for systemic failures in financial crime controls that enabled a customer to fraudulently claim £27.3m in Covid furlough payments, leaving UK taxpayers with an £800,000 loss. The regulatory action covers a nearly five-year period from October 2016 to July 2021, during which the building society operated inadequate monitoring systems for accounts being used improperly for business purposes.

The case represents one of the most significant enforcement actions against a UK financial institution for pandemic-related fraud prevention failures, and comes just days after the independent Covid counter-fraud commissioner revealed that fraud and errors cost UK taxpayers £10.9bn during the pandemic.

Background and Context

Nationwide's failures stem from a fundamental mismatch between its product offering and customer behavior. The building society did not provide business accounts during the period in question, yet was aware that customers were using personal accounts for business activities—a violation of their terms. According to the FCA's enforcement notice, this created blind spots in the institution's financial crime monitoring systems.

The problems persisted under chief executive Joe Garner's leadership until July 2021, when Nationwide was forced to launch a comprehensive financial crime transformation programme. The weaknesses were particularly acute during the pandemic when government support schemes created unprecedented opportunities for fraud. The building society only identified and addressed these issues after conducting internal reviews, which it voluntarily reported to the regulator.

Key Figures and Entities

The FCA's action was announced by Therese Chambers, joint executive director of enforcement and market oversight, who emphasized that "building societies and banks have a key role in the fight against financial crime" and that firms "must remain vigilant in this fight." The enforcement covers the tenure of former CEO Joe Garner, who led the organization from 2016 to 2022.

Current chief executive Debbie Crosbie, who joined after the critical failure period and oversaw the transformation programme, has faced separate controversy over a 43% increase in her maximum annual pay to £7m following Nationwide's £2.9bn acquisition of Virgin Money. The payout drew criticism from members of the mutual who called it an "obscenity" and hypocritical for an organization built on member ownership principles. Crosbie was made a dame in the King's birthday honours and was recently appointed Women in Finance champion by Chancellor Rachel Reeves.

Legal and Financial Mechanisms

The fraud case that triggered the enforcement action involved a customer who exploited Nationwide's monitoring weaknesses to receive 24 fraudulent Covid furlough payments totaling £27.3m over 13 months. Remarkably, approximately £26m of this sum was deposited in just eight days, a volume of transactions that should have triggered immediate compliance alerts.

Multiple red flags were missed over several years, according to FCA documentation. These included a 2014 application listing an office as a residential address, eleven attempted address changes (one using an address registered to 59,666 other companies), and fraud network alerts in 2019 and 2020. The customer also made 20 applications for various accounts and credit facilities, many of which were abandoned or denied—behavior patterns that should have triggered enhanced monitoring.

While HM Revenue and Customs successfully recovered £26.5m from the fraudster, approximately £800,000 remained unrecovered after being transferred out before authorities could freeze the account. This loss falls to UK taxpayers because the fraudulent claims were made against government support schemes.

International Implications and Policy Response

The Nationwide case illustrates broader vulnerabilities in financial systems during crises, when rapid disbursement of government funds creates opportunities for exploitation. The enforcement action comes amid growing scrutiny of financial institutions' role in preventing large-scale fraud, particularly following the publication of Covid counter-fraud commissioner Tom Hayhoe's final report, which documented the £10.9bn loss to UK taxpayers from pandemic fraud and errors.

The case underscores the importance of robust financial crime controls not just for regulatory compliance but as a critical defense of public funds. It highlights how gaps in monitoring systems—particularly for institutions with limited business banking services—can create pathways for sophisticated fraudsters to exploit government support programs. The FCA has signaled that financial institutions face increasing accountability for such failures, with enforcement actions serving as warnings to the broader sector.

Sources

This report draws on the Financial Conduct Authority's enforcement notice, FCA final notice documentation, statements from Nationwide Building Society, the Covid counter-fraud commissioner's final report, and public statements from UK financial authorities.