FCA Says Challenger Banks Need Stronger Financial Crime Defenses

An uptick in the number of suspicious activity reports filed by challenger banks has the U.K.’s Financial Conduct Authority (FCA) concerned about the protocols that online financial services providers have in place to prevent and fight financial crime.

A review by the FCA uncovered weaknesses in how challenger banks assess financial crime risk, according to a statement from the FCA on Friday (April 22). In some instances, the digital banks didn’t thoroughly check their customers’ income and occupation. On other occasions, the online banks failed to have financial crime risk assessments in place for their customers.

“Our 3-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,” said Sarah Pritchard, executive director, markets at the FCA.

Related: Tackling Money Launderers Means Shutting Down Financial Crime-as-a-Service

The review was conducted last year and unearthed numerous Suspicious Activity Reports filed by challenger banks, which triggered concerns about the thoroughness taken by online banks when verifying customers’ identities. The National Crime Agency estimates that money laundering costs the U.K. 100 billion pounds each year, per reports.

The FCA’s review also found evidence of good practices used by challenger banks, such as using technology to quickly identify and verify customers.

Challenger banks have been taking on traditional high street banks by using new technology and the latest IT systems. Most of the online banks reviewed are recent entrants to the financial markets in the U.K. and offer app-based services without a physical location.

Read more: FIs Use Digital Identity to Curb Money Laundering and Comply With Gov’t Rules

Digital fraud is an ongoing concern for bank customers, with 46% saying they have recently been fraud victims, PYMNTS reported. Most people, however, trust that their banks will keep them safe. Verification — ensuring that customers are who they say they are — is critical for keeping fraud at bay.