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FCA finds weaknesses in some challenger banks’ financial crime controls

According to a review conducted by the UK’s Financial Conduct Authority (FCA), challenger banks need to improve their assessment of 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.

The review, conducted over 2021, identified a rise in the number of suspicious activity reports 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 via 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.

The review included six challenger retail banks, which primarily consist of digital banks and covering over 8 million customers

Sarah Pritchard, Executive Director, Markets, 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.”

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