Challenger banks are required to enhance the way they evaluate financial crime risk, with some banks not sufficiently checking basic details such as income and occupation of their customers, finds a review of Financial Conduct Authority (FCA).
The review, which was carried out over last year by the UK’s market regulator, found that in some cases, these banks did not have financial crime risk evaluations for their customers.
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It found an increase in the number of Suspicious Activity Reports reported by challenger banks, thereby increasing concerns about the adequate checks and measures these banks have in place while onboarding new customers.
Leveraging smarter technology and latest IT systems, challenger banks intend to compete with conventional high street banks.
Several challenger banks are recent entrants to the UK financial markets, with online only business approaches and providing financial services through smartphone apps.
The review saw some proof of good practice such as the use of technology to identify and verify customers at speed.
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By GlobalDataFocusing on challenger banks that were relatively new to the market, the review included six challenger retail banks that mainly consist of digital banks and cover more than eight million customers. FCA, however, did not reveal the names of the firms it had reviewed.
The firms where issues were found have set up remedial measures to address the concerns, the regulator was quoted as saying by Bloomberg.
The changes may lead to higher rejection rates of new customers and may also lead to the termination of current relationships with customers, it added.
FCA executive director for markets Sarah Pritchard said: “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.”
