Challenger bank customers could face account closures
Six challenger banks competing against the traditional high street giants came under the spotlight by the regulator – the Financial Conduct Authority – over their processes to prevent financial crime.
The review which took place over 2021, found that some challenger banks failed to adequately check their customers’ income and occupation.
In some cases, the unnamed challenger banks, which serve over eight million customers, did not have financial crime risk assessments in place.
As such, the FCA said: “The weaknesses we found create an environment for more significant risks of financial crime to occur both when customers are onboarded and throughout the customer journey.”
Given the fast process to set up accounts, this could attract criminals particularly when they set up money mule networks, transferring stolen funds between accounts.
Further, the FCA said the quick set up process may mean challenger banks gather insufficient information to identify higher risk customers.
While many challenger banks depend on rapid customer growth for survival, and promote the ability to open accounts very quickly to attract customers, “this must not come at the detriment of complying with customer due diligence obligations as set out in the money laundering, terrorist financing and transfer of funds regulations 2017”.
The FCA said challenger banks are requested to review its findings and make improvements where necessary. As such, it may result in them “potentially rejecting a larger number of new customers at onboarding” so it could become harder for customers to open challenger bank accounts.
But for existing customers, it could also mean they face account closure. The FCA stated: “Where banks are reviewing their existing customer book, this may also result in challenger banks exiting banking relationships with customers.”
However, the FCA did find some evidence of good practice, for example innovative use of technology to identify and verify customers at speed.
Sarah Pritchard, executive director, markets at the FCA, said: “Our three-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.”