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City watchdog warns of cyber crime risk for new banks

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FCA signage seen at their head offices in London (REUTERS)
FCA signage seen at their head offices in London (REUTERS)

Six of the top UK “challenger” banks have weak financial controls that leave them at risk of being victims of money laundering, terrorist financing, fraud and cyber-crime, the top City watchdog warned today.

In a scathing report, the Financial Conduct Authority said the so-called challenger banks, supposed to shake up the lending and savings market, were woefully unprepared to deal with increasingly sophisticated financial criminals.

Challenger banks have grown quickly online, with brands such as Revolut, Starling and Monzo growing fast. The FCA report did not name any banks directly, but said its review had focussed 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”.

Starling Bank, founded by Anne Boden in 2014, confirmed it was one of the six.

A spokesman said: “Starling was one of the banks reviewed and we commend the FCA on taking financial crime seriously. Starling has been extremely vocal in raising awareness on these matters and in January this year announced that it would no longer be advertising on Meta platforms. As scrutiny of the Online Safety Bill is underway, we hope that the Government will ensure enforcement is prioritised and that regulators are properly funded to discharge their duties.”

Sarah Pritchard, Executive Director 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.”

The FCA report is a blow to the challengers, which like to market themselves as more modern alternatives to the traditional high street players such as NatWest and Barclays.

These traditional players are not without failures however. In December NatWest was fined £264 million for money laundering failures that saw it accepting black bin liners stuffed full of cash from a Bradford jeweller.

HSBC was fined £64 million for anti-money laundering failures also in December. The watchdog said there was s "inadequate monitoring of money laundering and terrorist financing scenarios” over many years.

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