LONDON—The U.K.’s financial regulator has urged the country’s so called “challenger banks” and fintechs to improve their anti-money laundering (AML) and fraud controls after highlighting multiple shortcomings.
These relatively new financial services firms are typically digital-only and rely on rapid growth for survival, according to a new report from the Financial Conduct Authority (FCA).
However, after appraising the financial crime controls put in place by a sample of banks with more than eight-million customers, the FCA found several issues, InfoSecurity reported.
The Shortcomings
Among the shortcomings:
- The FCA said it found weaknesses in banks’ customer due diligence (CDD), such as failing to obtain customer income and occupation details.
- Some had “customer risk assessment frameworks” that were not well developed and lacked sufficient detail. Others didn’t have an assessment framework in place at all.
- There was an inconsistent application of enhanced due diligence (EDD) and ineffective management of transaction monitoring alerts.
- There were also concerns over challenger banks’ suspicious activity reports (SARs).
‘Raises Concerns’
“The U.K. Financial Intelligence Unit (UKFIU) within the National Crime Agency (NCA) noted a substantial increase in the volume of SARs reported by challenger banks as banks exit customer relationships for financial crime reasons,” the report stated. “This raises concerns about the adequacy of these banks’ CDD and EDD checks when onboarding these customers. We also had concerns about the quality of SARs reported to the NCA.”
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