Challenger banks falling short of FCA’s risk assessment expectations

A review carried out by the Financial Conduct Authority has found that challenger banks need to improve how they assess financial crime risk, with some failing to adequately check their customers’ income and occupation. In some cases, challenger banks were found to have no financial crime risk assessments in place at all.

The review, conducted throughout 2021, 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.

That said, the review did find some evidence of good practice, such as the use of technology to identify and verify customers at speed, offering a quick and easy application process. This part of the review covered 6 challenger retail banks, which primarily consist of digital banks and covering over 8 million customers.

Sarah Pritchard (pictured), executive director, markets at the FCA said: “Our 3-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.”

The firms were advised to review the FCA’s expectations for the sector, as set out in its recent strategy.

Challenger banks aim to compete with traditional high street banks using smarter technology and more up-to-date IT systems. 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 into the financial crime controls at challenger banks may be read in full here: https://www.fca.org.uk/publications/multi-firm-reviews/financial-crime-controls-challenger-banks

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