FCA has published a thematic review on how challenger banks assess financial crime risk, and has highlighted significant failings. Among the findings of the review, which it carried out during 2021, focussing on banks that were relatively knew to the market including 6 retail banks which were also digital banks, were:
- overall, there are limited differences in the inherent financial crime risks that challenger banks face as opposed to traditional retail banks;
- there were examples of good practice including innovative use of technology to identify and verify customers at speed;
- challenger banks need to be aware of the need to adapt their financial crime control resources, processes and technology to their expanding businesses;
- most banks failed to gather proper details about customers’ income and occupation, which meant they could not properly assess the purpose and intended nature of a customer’s relationship with the bank;
- some banks were not properly applying EDD or documenting that they needed to do so, such as when dealing with PEPs;
- some banks did not have customer risks assessment frameworks in place at all, and others had frameworks that were not sufficiently developed;
- transaction alerts were often not well managed, including the rationales for discounting alerts;
- the NCA reported a significant increase in challenger banks making SARs when they exit customers for financial crime risk reasons. FCA things this raises concerns about the adequacy of the initial CDD. It was also concerned about the quality of the SARs;
- the change control programmes could often not keep up with changes to business models; and
- there was evidence that some banks had failed to make Principle 11 notifications in relation to financial crime control failures.
FCA expects all relevant banks to read this and its relevant Dear CEO letters and to be prepared to discuss financial crime controls in supervisory visits.