These banks need to enhance their systems, it says
Challenger banks need to improve how they assess financial crime risk, the Financial Conduct Authority (FCA) said, as it was revealed in its review that some were failing to adequately check their customers’ income and occupation while others did not have financial crime risk assessments in place for their customers.
The review, conducted over 2021, identified a rise in the number of suspicious activity reports by challenger banks, raising concerns about the adequacy of these banks’ checks when taking on new customers.
“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,” Sarah Pritchard, markets executive director at the FCA, said.
Challenger banks aim to compete with traditional high street banks using smarter technology and more up-to-date IT systems. The FCA noted that many are recent entrants to the UK financial markets, with online only business models and offering financial services through smartphone apps.
The FCA’s review during 2021 found some evidence of good practice, for example innovative use of technology to identify and verify customers at speed.
The review focused on challenger banks that were relatively new to the market and offered a quick and easy application process. This included six challenger retail banks, which primarily consist of digital banks and covering over eight million customers.
FCA advised firms to review its recent strategy setting out its expectations for financial services.
“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,” Pritchard said.
“Challenger banks should consider the findings of this review and continue enhancing their own financial crime systems to prevent harm,” she added.
