British digital banks need to improve control of financial crime, warns FCA

Icons for Monzo and Starling banking apps on a smartphone.

Adrian Dennis | AFP via Getty Images

Britain’s online-only challenging banks need to do more to prevent the misuse of their platforms by criminals, regulators have warned.

The Financial Conduct Authority on Friday announced the results of a review of financial crime control at several UK challenging banks – younger banks set up with the aim of accepting established lenders.

The FCA did not name any firms, but said its review focused on six challenging banks, half of which were digital banks. Starling Bank said it was one of the lenders being investigated by the regulator.

“Starling has been extremely vocal in raising awareness of these issues and announced in January this year that we would no longer advertise on Meta platforms,” ​​a Starling spokesman told CNBC.

The regulator said it found weaknesses in challenging banks’ due diligence checks on customers, with some firms failing to adequately assess the risk of financial crime when taking new customers on board. In some cases, challenging banks did not have customer risk assessments in place to begin with, it added.

In total, the companies reviewed by the FCA covered “over 8 million customers,” the watchdog said. The review excluded e-money issuers and payment service providers such as Revolut and Wise.

“Challenging banks are an important part of the UK’s retail banking offering,” Sarah Pritchard, FCA’s Chief Marketing Officer, said in a statement on Friday.

“However, there can be no trade-off between quick and easy account opening and robust financial crime control. Challenger banks should consider the results of this review and continue to improve their own financial crime systems to prevent damage.”

Fintech companies are under pressure to improve their control of financial crime, especially in the wake of economic sanctions against Russia due to its unprovoked invasion of Ukraine.

Fintech-friendly rules in the UK have allowed several upstart lenders, including Monzo and Starling, to flourish. However, there has been growing concern from regulators that some of these newer participants may have more lax control than established banks, as their platforms are designed to make it faster and easier to apply for an account or a loan.

Going forward, the FCA said it expects challenging banks to develop their defenses against economic crime to reflect their user growth and adapt their due diligence measures to take into account the increased risk of sanction evasion.

Last year, popular app-based bank Monzo revealed an investigation by the FCA into potential breaches of anti-money laundering laws. At the time, the company said the probe was “at an early stage” and that it was cooperating with the regulator.

Leave a Reply

Your email address will not be published.