FCA flags weak crime checks at challenger banks

The FCA said that some newer banks are failing to make proper checks on their customers to guard against financial crime. Photo:Toby Melville/Reuters (Toby Melville / reuters)

The Financial Conduct Authority (FCA) has criticised some new or 'challenger' banks over their ability to prevent financial crime.

The UK finance regulator found some challenger banks are “failing to adequately check their customers’ income and occupation.” In some instances, these financial institutions did not have financial crime risk assessments in place for their customers, the FCA said.

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In the review, which looked at six challenger banks with more than 8 million customers between them in 2021, the FCA found a rise in suspicious activity reports, which it said raised “concerns about the adequacy of these banks’ checks when taking on new customers”.

Many of the challengers are online only, serving customers via smartphone apps.

“Challenger banks are an important part of the UK’s retail banking offering,” said Sarah Pritchard, executive director for markets at the FCA.

“However, there cannot be a trade-off between quick and easy account opening and robust financial crime controls.”

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The report also said the UK Financial Intelligence Unit (UKFIU) within the NCA noted a substantial increase in the volume of Suspicious Activity Reports (SARs) reported by challenger banks as banks exit customer relationships for financial crime reasons.

The banks should continue enhancing their financial crime systems, the regulator said, without naming them.

The UK has been encouraging more banks to enter the market to take on the so-called Big Four lenders: HSBC, Lloyds, Barclays, and NatWest.

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