Digital banks show weaknesses in their defenses against financial crime, UK regulator warns


Icons for the banking apps Monzo and Starling on a smartphone.

Adrian Dennis | AFP via Getty Images

UK online-only banks need to do more to prevent criminals from misusing their platforms, regulators warn.

The Financial Conduct Authority released the findings on Friday of an investigation into financial crime control at several UK challenger banks – younger banks set up for the purpose of taking on established lenders.

The FCA did not name companies, but said the assessment focused on six challenger banks, half of which were digital banks. Starling Bank said it was one of the lenders monitored by the regulator.

“Starling has been extremely vocal about these matters, announcing in January of this year that we would no longer advertise on Meta platforms,” a Starling spokesperson told CNBC.

The regulator said it had found weaknesses in its customer due diligence checks on challenger banks, with some firms failing to adequately assess the risk of financial crime when hiring new customers. In some cases, challenger banks didn’t have customer risk assessments to begin with, it added.

Collectively, the companies assessed by the FCA had “more than 8 million customers,” the watchdog said. The review excluded e-money issuers and payment service providers, such as Revolut and Wise.

“Challenger banks are an important part of the UK’s retail banking offerings,” Sarah Pritchard, executive director of markets at the FCA, said in a statement Friday.

“However, there is no trade-off between quick and easy account opening and robust financial crime controls. Challenger banks should consider the findings of this assessment and continue to improve their own financial crime systems to prevent harm.”

Fintech companies are under pressure to improve their controls on financial crime, particularly in the wake of economic sanctions imposed on Russia over the unprovoked invasion of Ukraine.

Fintech-friendly regulations in the UK have allowed plenty of early-stage lenders, including Monzo and Starling, to thrive. But regulators are increasingly concerned that some of these new entrants may have more lax controls than established banks, as their platforms are designed to make applying for an account or loan faster and easier.

Going forward, the FCA said it expects the banks taking on the challenge to develop their defenses against financial crime to reflect their user growth, and adjust their due diligence measures to account for the increased risk of sanctions evasion.

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

Source link


Please enter your comment!
Please enter your name here