NatWest could face criminal probe

US prosecutors have told NatWest Group that it is in breach of an agreement not to prosecute as a result of allegedly illicit transactions carried out by a group of former traders. 

Federal prosecutors in Connecticut told NatWest in an August 30 letter that it had “materially breached” the terms of a 2017 accord that saw the lender pay $44m in penalties because of alleged “spoofing” trades that are now under investigation, according to a previously unreported filing. 

The breach could expose the Edinburgh-based bank’s US trading arm — NatWest Markets Securities — to criminal prosecution and other regulatory action that could have “material collateral consequences,” the September 3  filing notes. The UK bank, formerly known as Royal Bank of Scotland, is majority-owned by the British state after a bailout during the financial crisis.

NatWest said in the filing it intends to engage in discussions with prosecutors about their “determination of the breach of the NPA, including why criminal prosecution of the conduct underlying the NPA should not be pursued.”

Amy Cayzer, a spokesperson for NatWest in London, declined to comment. Spokespeople for the US Attorney’s office in Connecticut and the Department of Justice declined to comment.

NatWest reached a nonprosecution agreement with US authorities in 2017 to end a probe into allegedly fraudulent trading of mortgage-backed securities and collateralised loan obligations. Under the terms of the deal, the US agreed not to prosecute the bank as long as it didn’t commit any further wrongdoing. 

The bank, which reports third-quarter results on Friday, outlined the case of suspected spoofing in its 2019 annual report. The alleged trading took place in 2018, according to the report, and the spoofing investigation has resulted in repeated extensions of the NPA as the lender and prosecutors discuss any impact on the deal.

The case is a reminder of the legal woes that have trailed NatWest ever since its 2008 rescue by UK taxpayers in what was the biggest single bank bailout of the financial crisis. The firm, which, as RBS, once housed one of the world’s biggest investment banks, has faced billions of dollars in fines from issues including traders manipulating interest rates and currency markets and mis-selling mortgage-backed securities. 

Publicly known breaches of settlement agreements with prosecutors are rare but have happened. In 2014 Standard Chartered had to pay hundreds of millions of dollars to extend its settlement by three years. And the justice department wrote to Swedish telecom network equipment manufacturer Ericsson this month accusing the company of breaching a $1bn agreement it made with prosecutors in 2019 to end a long-running corruption probe. 

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