UK’s Financial Conduct Authority Acts to Improve Financial Crime Problems at Challenger Banks | Shearman & Sterling LLP

The UK’s Financial Conduct Authority has released the findings of its multi-company review of financial crime controls at challenger banks. The FCA undertook the review in 2021 in response to the 2020 National Money Laundering and Terrorist Financing Risk Assessment, which highlighted the risk that the rapid onboarding processes announced by challenger banks can attract criminals. The FCA review found that technology is well used to quickly identify and verify customers and that there are not many differences between the financial crime risks faced by challenger banks and those posed to banks. traditional retail. However, there are several areas where improvements can be made, at the integration stage and beyond. The FCA has asked all challenger banks to review its findings and implement the necessary changes to mitigate the risk of financial crime. As businesses grow, their resources, processes, and technology to fight financial crime must adapt accordingly.

The FCA examined the financial crime controls of a sample of firms, including six challenger banks offering products and services similar to traditional retail banks. The review covered governance, policies and procedures, risk assessments, identification of high-risk or sanctioned individuals or entities, due diligence and training.

CAF found:

  • Deficiencies in customer due diligence, including the application of enhanced due diligence. The FCA noted that the UK’s Financial Intelligence Unit had detected a marked increase in reports of suspicious activity by challenger banks, which is concerning.
  • Inadequate or non-existent customer risk assessment frameworks.
  • Ineffective management of transaction tracking alerts.
  • Weaknesses in the effective management of programs to combat financial crime.

The FCA confirms that challenger banks where significant issues were identified had corrective programs in place to mitigate the FCA’s concerns.

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