UK digital banks need to improve financial crime controls, FCA warns

Britain’s online-only challenger banks must do more to prevent abuse of their platforms by criminals, regulators have warned. The Financial Conduct Authority on Friday published the findings of a review of financial crime controls at several UK challenger banks – younger banks set up to take on established lenders.

The FCA did not name any companies but said its review focused on six challenger banks, half of which were digital. Starling Bank said it was one of the lenders examined by the regulator.

“Starling has been extremely vocal in raising awareness of these matters and in January of this year announced that we would no longer advertise on Meta platforms,” ​​a Starling spokesperson told CNBC.

The regulator said it found weaknesses in challenger banks’ due diligence checks on customers, and that some firms did not properly assess the risk of financial crimes when onboarding new customers. In some cases, challenger banks didn’t have customer risk assessments, to begin with, he added.

Collectively, the companies reviewed by the FCA “covered more than 8 million customers”, the watchdog said. The review excluded e-money issuers and payment service providers, such as Revolut and Wise.

“Challenger banks are an important part of the UK retail banking offering,” Sarah Pritchard, director of markets at the FCA, said in a statement on Friday.

“However, there can be no trade-off between quick and easy account opening and strong financial crime controls. Challenger banks should consider the findings of this review and continue to improve their financial crime systems to prevent harm.”

Fintech companies are under pressure to improve their financial crime controls, particularly in the wake of economic sanctions imposed on Russia for its unprovoked invasion of Ukraine.

Fintech-friendly regulations in the UK have allowed numerous emerging lenders to flourish, including Monzo and Starling. But there has been growing concern from regulators that some of these new entrants may have looser controls than established banks, given that their platforms are designed to make applying for an account or a loan faster and easier. simple.

Going forward, the FCA said it expects challenger banks to develop their financial crime defences to reflect the growth of their users and adapt their due diligence measures to take into account the increased risk of sanctions evasion.

Last year, popular app-based bank Monzo revealed an FCA investigation into possible breaches of anti-money laundering laws. At the time, the firm said the investigation was “at an early stage” and that it was cooperating with the regulator.