UK digital banks must step up financial crime controls, FCA warns

Icons for the Monzo and Starling banking apps on a smartphone.

Adrian Dennis AFP via Getty Images

Britain’s online-only challenger banks must do more to prevent criminals from abusing their platforms, regulators have warned.

The Financial Conduct Authority on Friday released the results of a review of financial crime controls at several UK challenger banks – younger banks set up with the aim of taking over incumbent lenders.

The FCA didn’t name any firms but said its review focused on six challenger banks, half of which were digital banks. Combined, these companies covered more than 8 million customers, the watchdog said. The review excluded e-money issuers and payment service providers such as Revolut and Wise.

The regulator said it found weaknesses in challenger banks’ due diligence checks on customers, with some firms failing to adequately assess the risk of financial crime when onboarding new customers. In some cases, challenger banks did not initially conduct customer risk assessments, she added.

“Challenger banks are an important part of the UK retail banking proposition,” FCA executive director of markets Sarah Pritchard said in a statement on Friday.

“However, there can be no compromise between quick and easy account opening and robust financial crime controls. Challenger banks should take the findings of this review into account and continue to improve their own financial crime systems to prevent harm.”

Fintech companies are under pressure to improve their controls against financial crime, especially after the economic sanctions imposed on Russia for its unprovoked invasion of Ukraine.

Fintech-friendly regulations in the UK have allowed numerous emerging lenders, including Monzo and Starling, to thrive. However, regulators are increasingly concerned that some of these newer entrants may have more lax controls than those of incumbent banks, as their platforms are designed to make applying for an account or loan quicker and easier.

Going forward, the FCA expects challenger banks to continue to evolve their financial crime defenses to reflect their user growth and adjust their due diligence measures to reflect the increased risk of sanctions evasion.

Last year, popular app-based bank Monzo announced an FCA investigation into possible violations of anti-money laundering laws. At the time, the firm said the investigation was “at an early stage” and was working with regulators.

https://www.cnbc.com/2022/04/22/uk-digital-banks-need-to-improve-financial-crime-controls-fca-warns.html UK digital banks must step up financial crime controls, FCA warns

Jane Marczewski

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