UPDATE 1-Nordea, Handelsbanken fined over money laundering breaches

* Banks fined by Sweden’s financial regulator

* Nordea hit with maximum 50 mln SEK fine

* Handelsbanken handed 35 mln SEK penalty (Updates with quotes, background)

STOCKHOLM, May 19 (Reuters) - Sweden’s financial watchdog has fined banking groups Nordea and Handelsbanken for breaching laws on money laundering and terrorism financing.

Nordea, the Nordic region’s biggest bank, was fined the maximum 50 million crowns ($6.1 million) and given a sharper warning than Handelsbanken, which was fined 35 million crowns.

The Financial Supervisory Authority (FSA) said major deficiencies in Nordea’s approach to tackling money laundering had been uncovered.

“It has been bad, really bad”, Per Hakansson, the FSA’s chief legal counsel, told a news conference. “They weren’t even aware that they have had high-risk customers.”

He said there was a high probability that had people tried to launder money or finance terrorism, they could have done so without Nordea being able to detect it.

The watchdog declined to comment on whether illegal activities had been uncovered in its probe, but noted the investigation had focused on oversight practices rather than individual offences.

The FSA said Nordea had lacked an effective system to detect and prevent money laundering for several years, whether identifying high-risk individuals, suspicious transactions and counterparts in tax havens or countries linked to terrorism.

The FSA said the severity of the compliance breaches would have justified revoking Nordea’s banking license, but that because the bank had taken measures to address the problems, it would just issue a warning alongside the fine.

It added the fine would probably have been a lot higher if the investigation had started under current rules.

Since last year, the FSA has the ability to issue penalties of up to 10 percent of a bank’s revenue, substantially higher than 50 million crown fine slapped on Nordea.

But since these rules were introduced after the probe had begun, 50 million crowns was the maximum.

“We acknowledge that we initially underestimated the complexity and the resources required to be fully compliant within this area,” Nordea CEO Christian Clausen said in a statement.

Clausen said the bank had taken significant steps to boost compliance work since 2013 and would continue to increase resources in the area.

Nordea was fined 30 million crowns in 2013 for deficiencies in its handling of EU sanctions regulations and in its work to prevent money laundering.

With regard to Handelsbanken, the FSA said the deficiencies were significant and meant the bank “ran a high risk of being used by people to launder money or finance terrorism”.

It gave Handelsbanken a “remark”, a less serious official sanction than a warning.

At 0920 GMT, Nordea shares were down 0.5 percent, while Handelsbanken’s were 0.1 percent lower.

$1 = 8.2553 Swedish crowns Editing by Louise Heavens and Mark Potter