Close-up of British bank notes

Upstart fintech banks are falling short in their efforts to guard against money laundering and other financial crimes, says the Financial Conduct Authority (FCA).

The British national regulator reported that a review of so-called “challenger banks” — which are typically online rivals to brick-and-mortar financial institutions— found that the emerging sector needs to do a better job in taking measures to guard against crime.

The review found that the sector’s due diligence, such as verifying client details (including income and occupation), was often inadequate, and that some of these banks aren’t carrying out assessments for financial crime risk.

Along with evidence of poor due diligence, the review found “inadequate oversight” and that challenger banks’ controls aren’t keeping up with their evolving business models.

The FCA also noted that there has been an increase in “suspicious activity reports” coming from challenger banks, which is “raising concerns about the adequacy of these banks’ checks when taking on new customers.”

“Challenger banks are an important part of the U.K.’s retail banking offering. However, there cannot be a trade-off between quick and easy account opening and robust financial crime controls,” said Sarah Pritchard, executive director, markets, at the FCA, in a statement.

“Challenger banks should consider the findings of this review and continue enhancing their own financial crime systems to prevent harm,” she added.

The FCA also called on firms to review the regulator’s latest strategy, which sets out its current expectations for financial services firms.

“Our three-year strategy highlights our commitment to reducing and preventing financial crime. This is important in creating that confidence for consumers and market participants in financial services and in demonstrating that the U.K. is a safe place to do business,” Pritchard said.