A recent review conducted by the Financial Conduct Authority (FCA) has found that some challenger banks have significant weaknesses within their financial crime controls, and need to improve how they assess financial crime risk. The review did find some evidence of good practice, for example innovative use of technology to identify and verify customers at speed.
The review, conducted over 2021, revealed that in some instances challenger banks did not have financial crime risk assessments in place for their customers. It also identified a rise in the number of Suspicious Activity Reports reported by challenger banks, raising concerns about the adequacy of these banks’ checks when taking on new customers.
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.
Sarah Pritchard, executive director for Markets at the FCA, said in a statement: “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.”
Henry Balani, global head of Industry and Regulatory Affairs for Encompass Corporation, said in a statement: “Challenger and digital banks have experienced tremendous growth in their customer bases in recent years, however, this rapid scaling has meant that compliance programs have not always kept pace. Dealing with increased volumes of customers and transactions while expanding into new markets has added complexity to anti-financial crime initiatives.”
He added: “Challenger banks have a reputation for being digitally advanced, but the need to maintain high levels of customer growth, while managing increasing financial crime risks, requires continued innovation.”