The U.K. Financial Conduct Authority has published the findings of its multi-firm review into financial crime controls at challenger banks. The FCA undertook the review in 2021 in response to the 2020 National Risk Assessment of money laundering and terrorist financing, which highlighted the risk that quick onboarding processes advertised by challenger banks could appeal to criminals. The FCA's review revealed that technology is being used well to identify and verify customers quickly and that there are not many differences between the financial crime risks facing challenger banks and those posed to traditional retail banks. However, there are several areas where improvements can be made, at the onboarding stage and beyond. The FCA has requested all challenger banks to review its findings and implement the changes necessary to mitigate the risk of financial crime. As firms grow, their financial crime control resources, processes and technology should be appropriately adapted.
The FCA reviewed the financial crime controls of a sample selection of firms, including six challenger banks offering similar products and services to traditional retail banks. The review covered governance, policies and procedures, risk assessments, identification of high-risk or sanctioned individuals or entities, due diligence and training.
The FCA found:
Flaws in customer due diligence, including the application of enhanced due diligence. The FCA noted that the U.K. Financial Intelligence Unit had detected a marked increase in Suspicious Activity Reports by challenger banks, which is a cause for concern.
Inadequate or non-existent customer risk assessment frameworks.
Ineffective management of transaction monitoring alerts.
Weaknesses in the effective management of financial crime change programs.
The FCA confirms that the challenger banks where material issues were identified had established remedial programs to mitigate the FCA's concerns.