FCA finds weaknesses in challenger banks’ financial crime controls

The regulator also found these organisations failed to adequately check their customers’ income and occupation, and some instances did not have financial crime risk assessments in place for their customers. 

Across its review - conducted over the course of 2021 - the FCA identified a rise in the number of suspicious activity reports highlighted by challenger banks. This raises concerns about the adequacy of these banks’ checks when taking on new customers.

It did find some evidence of good practice, for example an 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, including six challenger retail banks - which primarily consist of digital banks and cover more than eight million customers.  

Off the back of its findings, the regulator recommends these challenger banks its recent strategy setting out its expectations for financial services. 

At the start of April, it launched its three-year strategy to “improve outcomes for consumers and in markets throughout the UK”. it’s designed to prioritise resources to prevent serious harm, set higher standards and promote competition.

A key focus of the strategy is shutting down problem firms that do not meet basic regulatory standards. 

Commenting on its challenger bank review, the FCA’s executive director of markets Sarah Pritchard: “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. 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.”