Challenger banks need to improve how they assess financial crime risk, with some failing to adequately check their customers’ income and occupation, according to a review by the Financial Conduct Authority (FCA).

The FCA review, which was conducted over 2021, revealed a rise in the number of suspicious activity reports reported by challenger banks, raising concerns about the adequacy of these banks’ checks when taking on new customers.

The review found some evidence of good practice from challenger banks, such as the use of innovative technology. It also revealed that some did have financial crime risk assessments in place for their customers.

Challenger banks aim to compete with traditional high street banks using smarter technology and more up-to-date IT systems.

Many are recent entrants to the UK financial markets, with online-only business models and offering financial services through smartphone apps.

The review focused on challenger banks that were relatively new to the market and offered a quick and easy application process.

The challenger banks included six challenger retail banks, which primarily consist of digital banks, covering over eight million customers.

FCA markets executive director Sarah Pritchard says: “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 UK is a safe place to do business.”