Independent review and analysis

Challenger banks and financial crime controls

The FCA has recently announced the results of its review of challenger banks anti-fraud processes and controls. It undertook an extensive research programme that included over 50% of relevant firms and a sample that covered 8 million customers. The review focused on the activities of digital banks, a subset of challenger banks, who use technology led onboarding processes to promote quick and easy application procedures.

The FCA identified inadequate oversight leading to weaknesses in management of financial crime change programmes. It also found slow implementation in control frameworks that did not keep up with changes to business models.

The FCA highlighted several areas that required immediate improvement. Of particular importance were customer risk assessments (CRAs) and customer due diligence (CDDs). Some firms did not have any CRAs in place at all, a shocking finding as they are a crucial element of customer onboarding; they allow firms to correctly assess the purpose and intended nature of a customer’s relationship with them. Without them it is not possible to implement appropriate and proportionate monitoring, putting the firm at risk of becoming a conduit for financial crime.

Failings in CDD processes often result in less effective transaction monitoring, so it was surprising that some banks failed to conduct appropriate checks at the onboarding stage, instead relying on transaction monitoring systems. Even the most robust transaction monitoring systems are less effective without adequate CDD.

The FCA expects all firms subject to its money laundering requirements to have robust systems and controls in place to ensure firms form a complete picture of the customer. By doing this firms can ensure that financial crime risks are minimised.

These challenges are not new to the Rockstead team. We have undertaken gap analyses to ensure that the correct systems and controls are in place, built processes and checklists to address identified gaps, monitored calls to ensure agents are asking relevant questions and built robust telephone scripts. Learn how we can help you improve governance, MI, risk assessments and oversight by giving us a call.

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