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FCA warns challenger banks on financial crime checks

FCA warns challenger banks on financial crime checks

Some UK challenger banks are failing to conduct adequate checks on new customers and need to improve their financial crime assessments, according to an FCA review.

Over the last decade, a slew of digital-first challengers have transformed the UK banking market, attracting millions of customers with slick interfaces and up-to-date IT systems that give them an edge over the traditional high street giants.

However, the FCA says its review identified a rise in the number of Suspicious Activity Reports reported by challenger banks, raising concerns about the adequacy of their checks when taking on new customers.

Some of the six unnamed retail lenders covered in the review failed to even adequately check their customers’ income and occupation.

Some of the banks were also found not to consistently applying enhanced due diligence and were not documenting it as a formal procedure to apply in higher risk circumstances, for example when managing politically exposed persons.

However, the FCA has praised "innovative" use of technology to identify and verify customers at speed.

Sarah Pritchard, executive director, markets, FCA, says: "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."

Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 April, 2022, 12:51Be the first to give this comment the thumbs up 0 likes

Fintechs claim that they use Technology to deliver lower cost (Free Broking, Neobanks), faster onboarding (Challenger Banks) and other nice things compared to traditional banks and FIs.

Warnings like this make me wonder if Technology is actually a smokescreen for some other less kosher ways of achieving the promised outcomes, like PFOF in the case of Free Broking, and Lax KYC in the case of Challenger Banks.

But, as we have seen repeatedly over the last two decades or so, by the time the regulator begins to suspect something fishy, these fintechs become too big to have to comply. I'm amazed at how this playbook has endured at least since the time of PayPal in the late 90s. Further reinforcement of my take at Fintechs Need Guts More Than Lawyers.