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Challenger banks need to improve financial crime controls, FCA says

  • 22/04/2022
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Challenger banks need to improve financial crime controls, FCA says
A review by the Financial Conduct Authority (FCA) has found some challenger banks are failing to properly check customers’ income and occupation.

In a review carried out last year, the regulator found that in some instances there were no financial crime risk assessments in place for customers at challenger banks.

The review’s sample comprised of six challenger banks and over eight million customers. The FCA would not name the firms.

It concluded that challenger banks, which compete with longstanding, traditional banks, need to improve how they assess the risk of financial crime.

While there is no universal definition for a challenger bank, the government’s ‘National risk assessment of money laundering and terrorist financing 2020’ report described them as banks which aim to reduce the market of traditional banks through technology.

The FCA said banks which primarily offer current accounts, provide services through apps and operate without a branch network could also be considered challenger retail banks.

The review recorded an increase in the number of suspicious activity reports issued by challenger banks which raised concerns over the effectiveness of customer checks.

It found some banks were not consistently applying enhanced due diligence or documenting it when dealing with higher risk circumstances, such as managing politically exposed persons.

The FCA said criminals were possibly attracted by the faster onboarding process challenger banks promoted, leaving them open to higher risk customers.

It said challenger banks should apply a risk-based approach to anti-money laundering (AML) controls and make sure this remains fit for purpose as the company grows.

The review also found examples of good practices within challenger banks, such as the use of technology to identify and verify customers quickly.

Sarah Pritchard, executive director for markets at the FCA, said: “Our three-year strategy highlights our commitment to reducing and preventing financial crime. This is important in creating that confidence for consumers and market participants in financial services and in demonstrating that the UK is a safe place to do business.

“Challenger banks are an important part of the UK’s retail banking offering. However, there cannot be a trade-off between quick and easy account opening and robust financial crime controls. Challenger banks should consider the findings of this review and continue enhancing their own financial crime systems to prevent harm.”

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