UK authorities finds weaknesses in some challenger banks’ financial crime controls

The review focused on challenger banks that were relatively new to the market and offered a quick and easy application process. This included 6 challenger retail banks, which primarily consist of digital banks and covering over 8 million customers.

A review by the Financial Conduct Authority in the UK has found that challenger banks need to improve how they assess financial crime risk, with some failing to adequately check their customers’ income and occupation. „In some instances, challenger banks did not have financial crime risk assessments in place for their customers,” according to the press release.

The review, conducted over 2021, identified a rise in the number of Suspicious Activity Reports reported by challenger banks, raising concerns about the adequacy of these banks’ checks when taking on new customers.

Challenger banks aim to compete with traditional high street banks using smarter technology and more up-to-date IT systems. Many are recent entrants to the UK financial markets, with online only business models and offering financial services through smartphone apps.

The FCA’s review during 2021 found some evidence of good practice, for example innovative use of technology to identify and verify customers at speed. 

Firms should also review our recent strategy setting out our expectations for financial services.

Sarah Pritchard, Executive Director, Markets at the FCA said: ‘Our 3-year strategy highlights our commitment to reducing and preventing financial crime. This is important in creating that confidence for consumers and market participants in financial services and in demonstrating that the UK is a safe place to do business.

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.’

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1. Findings of the multi-firm review into the financial crime controls at challenger banks.