Nationwide Building Society has been fined £44 million by the UK financial watchdog for failing to put in place measures to protect against financial crime in the four and a half years leading up to July 2021.
The Financial Conduct Authority levied a £63 million fine initially, before allowing a 30% discount after matters were resolved.
Systems used by Nationwide, one of the UK's top six savings and lending providers, were "ineffective" at monitoring and assessing risk for personal current account customers and their transactions, the FCA said.
The building society was also aware that some of those customers were using their personal accounts for business activity, in breach of its terms, but did not offer them business accounts.
By not doing this, the FCA said, Nationwide's processes were ineffective at managing potential financial crime as it was unable to effectively identify, assess, monitor or manage money laundering risks.
The regulator said it also meant the lender did not have an accurate picture of its customers who presented a higher risk of financial crime.
An example was given of a customer who used personal current accounts to receive 24 fraudulent Covid furlough payments totalling £27.3 million over 13 months, with £26 million deposited over eight days. HMRC has since recovered £26.5 million of the total.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "Nationwide failed to get a proper grip of the financial crime risks lurking within its customer base. It took too long to address its flawed systems and weak controls, meaning red flags were missed with serious consequences.
"Building societies and banks have a key role in the fight against financial crime. Firms must remain vigilant in this fight.'
Nationwide was initially slow to make improvements but the FCA said it carried out large-scale financial crime transformation programme in July 2021.