Britain’s challenger and online banks have been told to tighten their controls for signing up new customers after a surge in ‘suspicious activity’ last year.
In a thinly veiled warning, UK financial regulator the Financial Conduct Authority (FCA) said the new start-ups were failing to check customers’ income and occupation adequately.
No banks were named directly, but the watchdog said its review included six retail challenger banks that were primarily digital and had 8mln customers.
Britain has seen a surge of new banking start-ups over the past ten years led by Monzo, Starling and Revolut.
How many new customers they are taking on is one of the key metrics of measuring performance.
In its study, the FCA found there were pockets of good practice but overall the banks were lax in their assessments of financial crime risk.
Sarah Pritchard, Executive Director, Markets at the FCA acknowledged challenger banks were an important part of the UK’s retail banking offering.
“However, there cannot be a trade-off between quick and easy account opening and robust financial crime controls.
“Challenger banks should consider the findings of this review and continue enhancing their own financial crime systems to prevent harm.”
Money laundering and fraud have been causing headaches across the banking system, with the major high street banks also having problems.
NatWest was fined a record £264mln in a criminal case earlier this year, while HSBC took a £64mln penalty in December.
A challenger bank is a new retail bank that directly competes with well-established traditional banks.