Pedro Arevalo
Plenitude Insights
ClientSight
AML/CTF/CPFThe UK Financial Crime Authority (FCA) recently published their findings following a review of Financial crime controls at Challenger Banks. The review focused on six challenger banks, in response to the risks raised in the UK’s 2020 National Risk Assessment (NRA) of Money Laundering and Terrorist Financing. The NRA noted the potential for criminals to “be attracted to the fast on-boarding process that challenger banks advertise, particularly when setting up money mule networks”. The FCA also highlights a risk that challenger banks may consequently promote the ability to open accounts quickly to attract customers, without sufficient information gathered to identify high risk customers.
Among the key financial crime control areas that require improvement, the Customer Risk Assessment (CRA) was highlighted as a critical weakness. The FCA found that the CRA framework was not well developed in some challenger banks and “lacked sufficient detail”, with some challenger banks failing to even implement a basic CRA in the first place.
Conclusion
Challenger banks can develop and implement a custom CRA in-house, however this option is typically costly to develop and maintain in the long run and may present ongoing challenges to ensure compliance with evolving regulations, especially in firms with a rapidly growing geographic footprint or product offering. If the design of the methodology or its calibration is not appropriate, it presents a risk exposure to the bank. It may also present obstacles to enabling accelerated international expansion of challenger banks. This is especially pertinent when entering emerging markets with potentially higher inherent financial crime risks.
Alternatively, challenger banks can adopt an off-the-shelf solution such as ClientSight, which can be adapted to the challenger bank’s business, products and services. More effective customer risk classification drives better risk management and ultimately risk mitigation outcomes, reducing your exposure to potential enforcement actions or fines.
