The UK’s Financial Conduct Authority Says Challenger Banks Are Not Taking Enough Actions To Combat Financial Crimes

According to regulators, Britain’s challenger banks need to do more to combat financial crimes, protect their users and ensure that their platforms are devoid of criminals. Challenger banks, also referred to as neobanks or digital-only banks are online banks providing financial services to underserved people usually via mobile apps with the aim of leveraging the shortcomings of the traditional banking or financial system.

On Friday, the UK’s Financial Conduct Authority issued a report that contained its findings on how UK challenger banks are controlling financial crimes.

The Financial Conduct Authority (FCA) didn’t specifically point fingers at any challenger bank. The regulator, however, said that its review placed focus on six challenger banks with half of them being digital banks and that together, they had more than 8 million customers. The review did not include money issuers and payment service providers such as Wise and Revolut.

The FCA said that these challenger banks failed to conduct due diligence checks on their customers adding that some forms completely fail to adequately access the risk of financial crime when accepting new clients or users. According to the FCA, some challenger banks do not even have customers risk assessment in place at all.

In its Friday statement, the regulator’s executive director of markets Sarah Pritchard said that “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.”

Following new sanctions arising from the Russia-Ukraine situation, companies including these challenger banks are under pressure to improve their financial crime record and ensure that they act with more transparency, especially with the kind of customers they let on board or use their platform.

Regulations regarding the operation of fintech in the UK are quite friendly compared to other countries. These regulations have helped platforms like Starling and Monzo to thrive in the UK. Regulators in the UK are, however, concerned with the way newer fintechs appearing on the scene are going about their operations – they are operating with more looseness, regulators say.

The FCA added that it expects challenger banks in the UK to improve the measures they are taking against financial crimes as well as ensure that laws are not being broken or evaded via their platforms.