Challenger banks show a concerning lack of commitment in screening new customers against sanctions or politically exposed persons lists. According to SmartSearch, only a quarter (24%) say they always verify new customers. Meantime, more than half (54%) also freely admit to performing such checks only “on occasions”.
SmartSearch’s comprehensive survey covered incumbent and challenger banks, crypto platforms, property developers and gambling firms.
After a year of Russian sanctions, the survey indicates that firms are failing to take their onboarding procedures seriously. In fact, just over a third of challenger banks (36%) have made changes to their compliance procedures since sanctions. But incumbent banks display a little more urgency with 6 in 10 (60%) of high street banks taking additional measures.
Challenger banks run the risk of facing substantial fines and the significant reputational damage associated with Anti-Money Laundering (AML) breaches.
FCA review flags up customer due diligence concerns
An FCA review last year raised concerns over the weaknesses in customer due diligence (CDD). Specifically, it noted that most challenger banks did not obtain details about customer income and occupation. The FCA concluded that this resulted in an incomplete assessment of the purpose and intended nature of a customer’s relationship with the bank.
Martin Cheek, MD, SmartSearch, said: “The figures reveal a larger problem with challenger banks and their unwise complacency towards compliance.
“These firms face the arduous task of keeping up with ever-changing compliance requirements, but simply screening new customers ‘on occasions’ is not enough.”
Cheek further emphasised the rise of PEPs in mainstream media. This arose initially through the sanctions related to the Russian invasion of Ukraine. And then came the very public saga relating to the politician Nigel Farage and his crusade against Coutts. It highlights that not all PEPs are necessarily on sanctions lists or associated with criminal networks leaving firms with the need to make an informed decision. PEPs require personal banking services and the freedom to engage in property transactions but firms must exercise caution when dealing.
Cheek added: “The truth about PEPs is that they are not all easily recognisable. Many of them are faceless names on a bank account. As a result, banks need the ability to not only flag PEPs but also make informed decisions on who they choose to do business with.”
To mitigate the risks of compliance breaches, firms are urged to adopt robust digital compliance solutions that can efficiently flag PEPs and provide the necessary data to make informed decisions. By implementing these solutions, banks can effectively minimise compliance risks. And enhance their due diligence processes, aligning with the recommendations outlined in the 2020 Money Laundering and Terrorist Finance Act.