UK digital banks need to improve financial crime controls, FCA warns

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

Adrian Dennis | AFP through Getty Pictures

Britain’s online-only challenger banks must do extra to forestall the abuse of their platforms by criminals, regulators have warned.

The Monetary Conduct Authority on Friday printed the findings of a overview into monetary crime controls at a number of U.Ok. challenger banks — youthful banks arrange with the goal of taking over incumbent lenders.

The FCA did not title any companies however stated its overview targeted on six challenger banks, half of which had been digital banks. Starling Financial institution stated it was one of many lenders scrutinized by the regulator.

“Starling has been extraordinarily vocal in elevating consciousness on these issues and in January this 12 months introduced that we might not be promoting on Meta platforms,” a Starling spokesperson informed CNBC.

The regulator stated it discovered weaknesses in challenger banks’ due diligence checks on prospects, with some companies failing to adequately assess the chance of economic crime when onboarding new shoppers. In some circumstances, challenger banks didn’t have buyer threat assessments in place to start with, it added.

Collectively, the businesses reviewed by the FCA “lined over 8 million prospects,” the watchdog stated. The overview excluded e-money issuers and cost providers suppliers, like Revolut and Clever.

“Challenger banks are an vital a part of the UK’s retail banking providing,” Sarah Pritchard, govt director of markets on the FCA, stated in an announcement Friday.

“Nevertheless, there can’t be a trade-off between fast and straightforward account opening and strong monetary crime controls. Challenger banks ought to take into account the findings of this overview and proceed enhancing their very own monetary crime techniques to forestall hurt.”

Fintech companies are underneath strain to enhance their monetary crime controls, notably within the wake of financial sanctions imposed on Russia over its unprovoked invasion of Ukraine.

Fintech-friendly laws within the U.Ok. have allowed quite a few upstart lenders together with Monzo and Starling to flourish. However there’s been rising concern from regulators that a few of these newer entrants might have extra lax controls than these of established banks, given their platforms are designed to make making use of for an account or mortgage sooner and simpler.

Going ahead, the FCA stated it expects challenger banks to develop their defenses towards monetary crime to replicate their person development, and adapt their due diligence measures to take the heightened threat of sanctions evasion into consideration.

Final 12 months, the favored app-based financial institution Monzo disclosed an investigation by the FCA into potential breaches of anti-money laundering legal guidelines. On the time, the agency stated the probe was “at an early stage,” and that it is cooperating with the regulator.

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