Digital challenger bank Monzo Bank Ltd. failed to build adequate controls against financial crime that could keep up with its rapid growth, according to the U.K.’s Financial Conduct Authority (FCA).
In a settlement, the FCA imposed a £21.1-million fine on Monzo after finding that, between 2018 and 2020, it breached rules to guard against the risk of money laundering and other financial crimes by failing to design adequate systems for onboarding clients, assessing client risk and monitoring transactions.
“Key elements of Monzo’s financial crime framework, particularly with regard to customer risk assessments and the collection of customer information, did not keep pace with the firm’s expansion,” the FCA said in its enforcement notice.
For instance, the bank used “a more limited approach to gathering customer information” during the onboarding process, the regulator noted.
“While this facilitated account opening processes, it meant that Monzo did not obtain and/or assess sufficient information about prospective customers,” it said. “In particular, the firm failed to obtain information about the purpose and nature of the proposed customer relationship and, at times, failed to review adverse media hits for a customer unless another risk factor was present.”
As a result of these failings, the FCA ordered a comprehensive, independent review of the bank’s financial crime controls. It also barred the bank from opening new accounts for high-risk clients. However, the regulator said that between 2020 and mid-2022, Monzo repeatedly violated that restriction, signing up 34,000 high-risk clients.
These compliance weaknesses came as Monzo was experiencing rapid growth, with its customer base rising to 5.8 million by 2022 from 600,000 in 2018 .
“However, Monzo’s financial crime controls failed to keep pace with its customer and product growth,” the FCA said.
By settling the case, the bank qualified for a 30% discount on its penalty, which otherwise would have been £30.1 million.
The bank has since adopted a program to enhance its anti-crime controls, based on recommendations from the independent review.
In its notice, the FCA said Monzo “has made progress in remediating and enhancing its financial crime framework” and acknowledged that the bank has committed to maintaining effective anti-crime controls. It also noted that Monzo fully co-operated with the investigation.
“Banks are a vital line of defence in the collective fight against financial crime. They must have the systems in place to prevent the flow of ill-gotten gains into the financial system. Monzo fell far short of what we, and society, expect,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA, in a release.
“Monzo onboarded customers on the basis of limited, and in some cases, obviously implausible information — such as customers using well-known London landmarks as an address. This illustrates how lacking Monzo’s financial crime controls were. This was compounded by its inability to properly comply with the requirement not to onboard high-risk customers,” she added.