LONDON (Reuters) - Coutts, best known as banker to The Queen, was fined 8.75 million pounds for "significant and widespread" failings in its money laundering controls, its second penalty for financial trangressions in four months.
Financial watchdog said Coutts had dealt inadequately with a type of clientele known as "politically exposed persons" - people whose prominent position in public life might have made them vulnerable to corruption.
"Coutts' failings were significant, widespread and unacceptable," Tracey McDermott, acting director of enforcement and financial crime at the Financial Services Authority (FSA), said in a statement on Monday.
"Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures."
The FSA had previously fined Coutts, owned by Royal Bank of Scotland, 6.3 million pounds in November for failings related to the sale of a fund product during the run-up to the 2008 financial crisis.
The latest fine comes after the FSA visited Coutts in October 2010 as part of a review into banks' management of high-risk money-laundering situations.
The FSA found Coutts did not apply robust controls when starting relationships with high-risk customers and did not consistently apply an appropriate level of monitoring.
It gave no further details and did not indicate if any particular customers were a cause for concern.
Coutts, which was founded by Thomas Coutts in the 18th century, is one of Britain's best-known private banks and boasts a client list which has included sports people and pop stars as well as the British monarch.
The FSA said Coutts had started improving its anti money-laundering systems and had agreed to settle at an early stage with the regulator over the fine. If it had not done so, Coutts would have been fined 12.5 million pounds.
Richard Yoxon, managing director at Brand Finance - a consultancy which assesses the value of various corporate brands - said Coutts' clientele would likely be disappointed by the latest fine, but added that steps taken by Coutts to improve its systems could help reassure concerned customers.
"No doubt the bank's high profile, wealthy patrons will be concerned and disappointed by news of today's FSA fine for failure to implement adequate money laundering controls," said Yoxon.
"Certainly this news will prompt current and potential customers to reassess their relationship with the bank, but only time will tell if the Coutts brand will suffer any lasting damage. Coutts' response to the fine will determine the longer term impact on brand," he added.
"The bank's statement that they remain committed to preventing any future failings may be enough to provide concerned customers with assurance than the bank can still be trusted with their financial affairs."
Coutts last week sold its Latin American, Caribbean and African private banking arms to Royal Bank of Canada as part of its strategy to focus more on its key markets such as the UK, Switzerland, Russia, the Middle East and Asia.
Editing by Myles Neligan and David Holmes