UK digital banks must improve financial crime checks, FCA warns
Monzo and Starling banking app icons on a smartphone.
Adrian Denis | AFP via Getty Images
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 – fledgling banks set up to prey on incumbent lenders.
The FCA did not name any companies, but said its review focused on six challenger banks, half of which were digital banks. Starling Bank said it was one of the lenders being scrutinized by the regulator.
“Starling has been extremely active in raising awareness of these issues and in January of this year we announced that we would no longer advertise on the Meta platforms,” a spokesperson for Starling told CNBC.
The regulator said it found weaknesses in challenger banks’ due diligence checks on customers, with some firms failing to properly assess the risk of financial crime when onboarding new customers. In some cases, challenger banks did not have customer risk assessments in place, 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, like Revolut and Wise.
“Challenger banks are an important part of the UK retail banking offering,” Sarah Pritchard, executive 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 heed the findings of this review and continue to improve their own financial crime systems to prevent the damage.”
Fintech firms are under pressure to improve their controls on financial crime, particularly in the wake of economic sanctions imposed on Russia for its unprovoked invasion of Ukraine.
Fintech-friendly regulations in the UK have allowed many newbie lenders, including Monzo and Starling, to thrive. But regulators are increasingly concerned that some of these new entrants may have more lax controls than established banks, given that their platforms are designed to make applying for an account or loan faster and easier.
Going forward, the FCA said it expects challenger banks to develop their financial crime defenses to reflect the growth of their users and adapt their due diligence measures to account for the increased risk of circumvention. Sanctions.
Last year, popular app-based bank Monzo revealed an FCA investigation into potential violations of anti-money laundering laws. At the time, the company said the probe was “in its early stages” and was cooperating with the regulator.