The news: The UK’s Financial Conduct Authority (FCA) warned challenger banks that their inadequate financial crime defenses could be exposing them to “money mule networks” laundering cash.
What the FCA’s review found: The regulator reported that its review of six unnamed challenger banks led it to conclude:
- Monitoring of transaction alerts is “ineffective” and controls around financial crimes are weak.
- Insufficient checks are performed on new customers.
- Most banks failed to identify high-risk customers during onboarding and weren’t gathering information like applicants’ income and occupation.
- But the FCA did praise banks’ “innovative use of technology” to verify customers quickly.
What this means: Challenger banks aim to utilize quick, hassle-free onboarding and loan approvals to try to outcompete incumbent lenders and win new customers. But in their haste to lower the barriers to accessing financial products, they are ignoring sound risk management practices and credit-risk-worthiness assessment metrics.
- The FCA’s review may highlight endemic flaws among challenger banks’ controls compared with incumbents, and the greater risks that these banks, the financial system, and their customers could be exposing themselves to.
- It could also signal a harder stance by the watchdog. The regulator singled out banks’ role in stamping out sanctions evasion in the wake of Russia’s invasion of Ukraine and reducing money laundering, which costs the UK £100 billion ($137.5 billion) annually, per the National Crime Agency.