Britain's Financial Services Authority (FSA) has fined Royal Bank of Scotland £5.6m for breaches in its risk controls which could have facilitated terrorist financing.
The FSA said RBS, which is 83%-owned by the British government, did not have adequate systems and controls in place to prevent breaches of UK financial sanctions.
Margaret Cole, the watchdog's director of enforcement and financial crime, said: 'The involvement of UK financial institutions in providing funds, economic resources or financial services to designated persons on the sanctions list undermines the integrity of the UK's financial services sector.'
'By failing to screen relevant customers and payments against Her Majesty's Treasury sanctions list, Royal Bank of Scotland Group left itself open to the risk that it was facilitating terrorist financing,' she added.
RBS said in a statement that it had acknowledged the FSA's findings and had taken action to strengthen its controls systems.
