Challenger banks lack adequate financial crime controls, FCA review finds

The Financial Conduct Authority (FCA) has found that some challenger banks need to improve how they assess financial crime risk. 

This was identified after the regulator found that some challengers were failing to adequately check their customers’ income and occupation. In some cases, challenger banks were found to not have financial crime risk assessments in place for customers.

The review – conducted over 2021 – found a rise in the number of Suspicious Activity Reports reported by challenger banks, which rose concerns about the adequacy of these banks’ checks when taking on new customers.

The FCA’s review focused on challenger banks that were relatively young in the market and offered a simple and fast application process. This included six challenger retail banks which covered over eight million customers.

Despite the negatives, the authority remarked that the review also found some cases of good practice, such as in the ‘innovative use of technology to identify and verify customers at speed’.

FCA said, “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.”

FCA executive director of markets Sarah Pritchard added, “Our 3-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.”

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