The Financial Conduct Authority (FCA) is warning UK challenger banks they must step up their financial crime assessments after finding that some are failing in their checks according to its latest review.
The FCA found that some banks in the UK did not have customer risk assessments in place to combat financial threats from criminals. Risk assessments are usually in place so that banks know who their customers are and can help prevent money laundering schemes. This is a legal requirement for companies who are covered by the UK’s money laundering regulations.
The rise of digital challenger banks has coincided with more intricate and niche ways of performing digital crimes such as fraud and money laundering. These challenger banks initially identified themselves as a better alternative than traditional banks, with new IT databases that help for better user experience.
Yet the FCA found a rise in the number of suspicious activity reports, reported by challenger banks. This brought about new concerns surrounding the adequacy of checks when it came to signing up new customers.
The FCA spoke on these new concerns in a statement: “Without a customer risk assessment, a firm can’t ensure that due diligence measures and ongoing monitoring are effective and proportionate to the risks posed by its individual customers.”
Six unidentified retail lenders who were covered in the review failed to check on their customers income and occupation. Various banks were also found failing to apply proper due diligence, not documenting its formal procedures when applying it to higher risk circumstances.
Furthermore, the FCA found that some customers who were deemed as risky, were slipping through the net, only being discovered as a customer for a while.
“Challenger banks are an important part of the UK’s retail banking offering,” said Sarah Pritchard, Executive Director of Markets at the FCA.
“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.”
Despite the rising concerns on risk assessment checks, the FCA did highlight that challenger banks “innovative” use of technology and data to verify and speed up the customer onboarding process.
