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

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

Britain’s online-only challenger banks need to do extra to stop the abuse of their platforms by criminals, regulators have warned.

The Financial Conduct Authority on Friday published the findings of a overview into financial crime controls at a number of U.Okay. challenger banks — youthful banks arrange with the purpose of taking over incumbent lenders.

The FCA did not title any corporations however mentioned its overview centered on six challenger banks, half of which have been digital banks. Collectively, these corporations lined greater than 8 million clients, the watchdog mentioned. The overview excluded e-money issuers and cost companies suppliers, like Revolut and Clever.

The regulator mentioned it discovered weaknesses in challenger banks’ due diligence checks on clients, with some corporations failing to adequately assess the danger of financial crime when onboarding new shoppers. In some instances, challenger banks didn’t have buyer threat assessments in place to start with, it added.

“Challenger banks are an important part of the UK’s retail banking offering,” Sarah Pritchard, govt director of markets on the FCA, mentioned in an announcement Friday.

“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.”

Fintech corporations are below strain to improve their financial crime controls, significantly within the wake of financial sanctions imposed on Russia over its unprovoked invasion of Ukraine.

Fintech-friendly rules within the U.Okay. have allowed quite a few upstart lenders together with Monzo and Starling to flourish. However there’s been rising concern from regulators that a few of these newer entrants might have extra lax controls than these of established banks, given their platforms are designed to make making use of for an account or mortgage sooner and simpler.

Going ahead, the FCA mentioned it expects challenger banks to develop their defenses towards financial crime to mirror their consumer development, and adapt their due diligence measures to take the heightened threat of sanctions evasion into consideration.

Final yr, the favored app-based financial institution Monzo disclosed an investigation by the FCA into potential breaches of anti-money laundering legal guidelines. On the time, the agency mentioned the probe was “at an early stage,” and that it is cooperating with the regulator.

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