The Monetary Conduct Authority’s (FCA) expectations for challenger banks present classes for all within the monetary service trade. Challenger banks, providing up to date client experiences and disrupting customary observe throughout the monetary providers market, have pushed the FCA to contemplate what it expects for monetary crime controls in an ever-changing market. 

In 2021 (notably previous to the enlargement of the UK sanctions regime regarding the Russian invasion of Ukraine), the FCA undertook a evaluation of economic crime and anti-money laundering (AML) controls at a pattern group of six UK challenger banks, overlaying eight million clients.

The end result of this evaluation was revealed on 22 April 2022, which provides important perception into the FCA’s wider expectations in relation to such controls, together with an understanding of how expertise could also be used to satisfy these expectations whereas enhancing buyer interactions.

Why Did the FCA Undertake This Overview?

Along with the FCA’s continued give attention to stopping monetary crime within the monetary providers trade, the FCA’s curiosity on this space was little doubt piqued by:

• The newest UK Nationwide Threat Evaluation for Cash Laundering and Terrorist Financing.

• The substantial latest improve within the variety of suspicious exercise studies and protection towards cash laundering studies made by challenger banks to the UK Monetary Intelligence Unit throughout the Nationwide Crime Company.

Particularly, the UK Nationwide Threat Evaluation for Cash Laundering and Terrorist Financing flagged that the quick onboarding processes marketed by challenger banks could entice legal clients, particularly for the enlargement of their cash mule networks. It additionally acknowledged that these quick onboarding processes improve the chance of challenger banks failing to assemble sufficient info to correctly determine high-risk clients.

What Did the FCA’s Overview Discover?

The FCA’s evaluation of economic crime and AML controls targeted on a number of key areas: governance and administration info, insurance policies and procedures, threat evaluation, identification of high-risk people, due diligence and ongoing monitoring, and coaching and consciousness.

Broadly, whereas the FCA recognized some good practices (significantly in relation to the usage of expertise to rapidly determine and confirm clients), it discovered various areas of concern. Key points recognized have been:

• Weaknesses within the administration of economic crime controls, together with inadequate oversight. A number of challenger banks had established techniques of management that have been unable to maintain tempo with the fixed modifications to their enterprise fashions.

• Inadequate resourcing, significantly in monetary crime and AML monitoring features. This meant that sure transaction monitoring alerts have been ineffectively managed or weren’t reviewed in a well timed trend.

• Underdeveloped client threat evaluation frameworks, which meant that some challenger financial institution threat evaluation processes lacked element and a few challenger banks didn’t also have a buyer threat evaluation in place.

• Insufficiently detailed buyer due diligence processes, which didn’t acquire particulars reminiscent of buyer revenue ranges or occupation.

What Can We Study from This?

Whereas the motion factors recognized listed here are most narrowly relevant to challenger banks, it’s clear that the teachings realized might be extrapolated to all corporations topic to the AML regime, in addition to extra usually to UK-authorised corporations at present managing the combination of enhanced sanctions threat into their insurance policies and procedures.

From a optimistic perspective, the FCA acknowledged the progressive use of expertise demonstrated by some challenger banks, significantly when engaged on figuring out and onboarding new clients. This remark is indicative of the FCA’s angle to modernization, specifically that expertise could be a useful gizmo for streamlining and updating the sensible software of long-standing compliance rules.

Nonetheless, the FCA’s evaluation additionally speaks to a wider concern that FCA-regulated entities, energetic within the present surroundings of fast-paced regulatory change, should be ready to replace their monetary crime and AML controls speedily in response to present occasions and enterprise mannequin modifications.

Virtually talking, because of this banks and corporations must evaluation their compliance frameworks to make sure they’re assured that buyer due diligence measures are sufficiently tailored and satisfactory for heightened sanctions dangers and that they adequately tackle the AML points recognized within the Nationwide Threat Evaluation for Cash Laundering and Terrorist Financing.