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FCA highlights financial crime concerns to Challenger Banks


A review by the Financial Conduct Authority (FCA), conducted over 2021, has raised concerns over the financial crime controls of challenger banks, finding a rise in the number of Suspicious Activity Reports (SARs).

The review included an in-depth focus on six challenger retail banks, primarily consisting of digital banks covering over 8 million customers.

The FCA found that, despite some evidence of good practice, such as innovative use of technology, challenger banks were not verifying customers to the required level of compliance, which created an environment of heightened risk for financial crime to occur, not just during onboarding but through the entire customer journey.

Amongst the concerns, the FCA noted that some challenger banks did not carry out sufficient customer due diligence to obtain basic customer details required for associated checks, as well as insufficient enhanced due diligence for those in higher risk circumstances.

As a result, the FCA has requested that challenger banks review these findings and make improvements where necessary to bolster their defences against financial crime.

Dr Henry Balani, Global Head of Industry and Regulatory Affairs for Encompass Corporation, commented:

“The rapid rise of challenger banks offering digital services to millions of customers brings the risk of increased financial crime, which must be met head on. As regulators scramble to introduce new guidance to prevent fraud and money laundering, it is also important for challenger banks to be proactive in their approach to addressing these issues.

“A fast-moving industry that is serving customers around the globe should be setting the standard when it comes to utilising automated technologies in order to deliver AML and KYC checks that can quickly give organisations a complete picture of their customer base. “Challenger banks lead with technology as part of their digital innovation remit, which can result in regulatory requirements playing second fiddle. They must ensure the same standards are met as those of other regulated banks when tackling the rising tide of financial crime.”

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