Digital bank Monzo is being investigated by the UK’s Financial Conduct Authority (FCA) over potential breaches of financial crime and money laundering regulations.
The financial watchdog sent letters to several retail banks including Monzo in May, warning of failings in their anti-money laundering controls.
“In May 2021, the FCA notified us that it had started an investigation into our compliance with the Money Laundering Regulations 2017, potential breaches of some of the FCA Principles for Businesses and related FCA rules for anti-money laundering and financial crime systems and controls between 1 October 2018 to 30 April 2021,” Monzo said in its annual report.
The online bank said that the financial watchdog was “reviewing and investigating” its compliance with financial crime regulations and that the investigation was still “at an early stage”, meaning that it would take some time to be resolved. “This could have a material negative impact on our financial position, but we won’t know when or what the outcome will be for some time,” Monzo added.
A Monzo spokesperson said the bank took the prevention of financial crime “extremely seriously”. “Over the past year, we have made major investments in our controls in this area as a priority and will continue to invest heavily in this part of the business.
“The FCA’s investigation remains at an early stage. Our operations are unaffected and we remain committed to serving our customers.”
In 2020, hundreds of Monzo customers claimed they were left without access to money when their accounts were suddenly frozen during the first coronavirus lockdown, according to the Guardian.
At the time, Monzo said it did so because it believed there was suspicious activity occurring and later unblocked a customer’s account and apologised, saying “we don’t always get this right”. However, it said that in 95% of cases, it had made the right decision in freezing accounts.
Monzo said it had been able to “return millions of pounds to victims of fraud” using its processes, but the bank admitted that it could be frustrating as it was not legally permitted to inform customers or the press why accounts had been blocked.
While the challenger bank reported a 23% jump in new customers to 5 million, compared with 2020, its report also showed the bank’s pre-tax losses widened 12% in the year to February to £130m, due primarily to higher costs for employee share awards and a property charge.
Monzo is not the only challenger bank facing scrutiny over money laundering allegations. In Germany neobank N26 was ordered by the Federal Financial Supervisory Authority (BaFin) to step up its AML efforts. BaFin mandated that N26 Bank change how it approaches IT monitoring and customer due diligence.
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