Challenger Banks
'Challenger Banks' technology, IT systems and responsiveness compete with service capabilities of traditional high street banks; predominantly in the personal current account (PCA) market. The UK's National Risk Assessment of money laundering and terrorist financing 2020 (NRA) noted 'overall, we assess there are only limited differences in the inherent risks represented by challenger banks, compared with traditional retail banks'.
All banks must carry out customer due diligence (CDD) as part of their compliance with requirements of The Money Laundering Regulations (MLR). The MLR include other requirements which must be complied with by all banks, using a risk-based approach (for an overview see 'FAQ on Money Laundering').
Banks should have effective financial crime prevention arrangements. Anti-money laundering and preventing sanctions evasion are priority risks to address.
Arrangements should include risk-assessment and risk-based controls in Customer Due Diligence, transactions, management oversight, reporting to the authorities and record keeping.
A firm's policy and procedure framework should reflect senior management risk-appetite; and be designed to address money laundering and terrorist financing risk.
Regulators test financial crime controls, including those deployed in challenger banks, when they seek to enter the UK financial industry.
The FCA uses a range of regulatory tools, including appointing skilled persons, to carry-out independent reviews (i.e., under section 166 of the Financial Services and Markets Act 2000).
Non-compliance with the MLR or inadequate compliance with financial sanctions and embargoes requirements, can lead to regulatory enforcement and/or criminal prosecution.
If concerns exist about the adequacy of internal controls a firm may be subject to a s166 review initiated by the FCA, or have to conduct remedial activity following such regulatory review.
Regulatory fine, diversion of senior management time and negative publicity leads to reputation risk, and may involve on-going monitoring by the regulator in egregious cases.
Control design failings or inadequate internal arrangements for preventing financial crime, may lead to a new business registration being declined or restrictions being imposed on a registered firm.
Benefit from experienced support provided by a former Money Laundering Reporting Officer ('MLRO') and Head of Financial Crime.
SYSC326 assists clients to comply with regulatory requirements for AML and sanctions (e.g. per FCA Handbook - SYSC 6.3 Financial crime).
SYSC326 assists clients to identify, assess and respond to AML and financial sanctions risk in their client base and operating environment.
