The FSA has fined Raiffeisen Zentralbank Osterreich's London branch £150,000 for breaches of the money laundering rules.
It is the first time the FSA has fined a UK branch of a European bank for falling foul of the money laundering regulations.
The FSA found that RZB London failed to act promptly to update its anti-money laundering and compliance manual.
The manual did not include sufficient assistance to enable staff to comply with identification requirements for certain categories of customers, exposing the bank to an unacceptable risk that it would be used to launder money.
The FSA says since it identified the failings, RZB London has devoted considerable resources to implementing a comprehensive remedial action plan, which has put in place appropriate levels of control.
Director of enforcement Andrew Procter says: “All UK-based regulated firms must have adequate anti-money laundering procedures in place for client identification. RBZ London's failure to comply with the client identification provisions exposed the firm to an unacceptable risk of being used for money laundering.”