In Europe alone, there were around 77 challenger banks, the highest number among the rest of other regions. With a surge in their growth, they are experiencing several criminal risks as well. Fraudsters seek to exploit challenger banks in order to conceal their identities and illicit funds. Criminals are targeting FinTech services to launder money, fund terrorism, and commit other financial crimes.
Challenger banks are facing an acceptance spike as they capitalize on an increased need to come up with more innovative financial techniques. However, to meet customers’ demands and regulatory standards alike, they need to integrate efficient anti money laundering solutions. This article discusses how AML verification services help challenger banks prevent compliance penalties, hinder criminal activities, and counter other vulnerabilities.
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Identifying Risks Involved in Challenger Banks’ Operations
In addition to risks associated with FinTech services such as easy money laundering, challenger banks experience customer-related threats, including anonymity and high-speed transactions. These factors are the major attractions for criminals to conceal their true identities. Furthermore, fraudsters seek advanced financial services offered by challenger banks to escape anti-money laundering scrutiny. While customers are looking forward to using these institutions as their mode of transactions and handling other money matters, the legal burden is increasing.
Challenger banks are experiencing a high risk of regulatory repercussions as they try to make AML compliance measures lenient to entertain more clients. In return, malicious activities are surfacing on a large scale making these institutions and customers highly vulnerable. Further risks that challenger banks face involving:
Corruption and Bribery
In order to assist their citizens and provide them with more relief, the majority of governments have come up with several programs. These involve less AML screening-based money management, low-interest loans, financial aid, property schemes, and additional bonuses.
Criminals see advanced financial technologies as their golden opportunity to misuse funds. Furthermore, Politically Exposed Persons (PEP) use challenger banks to conceal their illicit money in the form of corruption. Similarly, fraudsters exploit these financial institutions to divert governmental funds by bribing officials. This way, criminals easily escape AML compliance.
Unemployment, increased expenses, and other financial hardships are increasing criminal threats. Fraudsters exploit vulnerable individuals and convince them to indulge in money muling. Later, challenger banks are used to escape AML compliance, conceal funds, and hide the real identities of criminals.
Cyber Security Threats
Remote deposits, withdrawals, and seamless transactions are other factors drawing criminals’ attention. They use synthetic identities to trick AML security mechanisms and steer clear of customer verification. Fraudsters use spoofing, deepfake, and phishing attempts to compromise challenger banks’ digital systems. By committing cyberattacks, they steal confidential information and use it to misuse financial services.
Keeping cross-border business dealings and transactions in view, regulatory bodies are enforcing strict anti-money laundering measures. While challenger banks are the major facilitators of digital payments, they are driving more chances of legal scrutiny. However, to limit criminal risks and ensure compliance, developing AML systems has become crucial for them.
Cross-border transactions pave the way for fraudsters to launder high sums of money. On the contrary, efficient AML solutions identify and deter their malicious activities.
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Financial Conduct Authority (FCA)’s Guidelines for Challenger Banks
The integration of innovative financial technologies and identity verification methods is streamlining digital onboarding. Using real-time selfies, liveness detection, online document authentication, and cross-validation across global watch lists enables challenger banks to enhance their services.
The dramatic increase in financial crimes is driving legal authorities’ attention toward these institutions. Similarly, FCA made it clear that challenger banks should not compromise AML compliance controls while bringing in the digitization of money management.
FCA identified several areas where challenger banks require immediate development to restrict criminal activities. Therefore, these institutions should incorporate the following anti-money laundering controls:
- Challenger banks need to enhance risk assessment and upgrade financial crime controls while expanding their business.
- Improvements within Customer Due Diligence (CDD) mechanisms for secure digital onboarding are another major requirement.
- Challenger banks should critically obtain personal information, sources of funds details, and occupational proofs.
- Upgrade the application of Enhanced Due Diligence (EDD) to identify high-risk customers as well as transactions.
- Integrate efficient AML solutions for ongoing transaction monitoring and suspiciousness detection.
- Prepare Suspicious Activity Reports (SARs) and submit them to respective authorities. Challenger banks are further advised to increase the volume of SARs to secure customer relationships.
Customer retention and capitalizing on business opportunities to outperform in a competitive market are the major focus of challenger banks. In this context, they should establish enhanced AML security mechanisms. Practically this refers to implementing effective customer verification, due diligence, risk assessment, and ongoing monitoring. In order to ensure AML compliance, incorporating advanced financial crime prevention solutions is a promising bet for challenger banks