Shares in Santander and Lloyds fell after the Financial Times reported that Iran used accounts from two of the U.K.'s biggest banks to covertly move money around the world as part of a vast sanctions-evasion scheme backed by Tehran's intelligence services.
According to documents seen by the Financial Times, Lloyds and Santander U.K. provided accounts to British front companies secretly owned by a sanctioned Iranian petrochemicals company based in London.
Shares in Madrid-based parent Santander fell as much as 3.6% and were down 2.9% at 0827 GMT, while shares in Lloyds declined 0.9% by 0842 GMT.
A Santander spokesperson said the bank declined to comment on specific client relationships.
"Santander abides by its legal and regulatory obligations, and we are highly focused on sanctions compliance," the person said.
"Where we identify sanctions risks, we will investigate and take appropriate action."
A Lloyds spokesperson said: "The Group's business activities are conducted to ensure compliance with applicable sanctions laws.
"We are committed to adhering to all legislative and regulatory requirements as they relate to economic crime. We are not permitted to comment on individual customers."