Fintech lenders have failed to educate FCA on financial crime, says digital bank chief
Fintech lenders have done a “poor job” of educating the UK’s financial regulators on how to stamp out financial crime as banking has shifted onto digital apps, the chief of Cashplus has said.
Rich Wagner, who founded digital bank Cashplus in 2005 and steered the firm to a full banking licence in 2021, said methods of preventing fraud and money laundering at digital banks had moved on in the past twenty years, but firms had not explained their controls properly to the Financial Conduct Authority.
His comments come after the FCA issued a stern warning to some UK digital lenders in April over concerns that six firms – not including Cashplus – may have prioritised speedy onboarding of customers over strict due diligence processed.
A review of digital banks had raised concerns about the “adequacy of these banks’ checks when taking on new customers”, the FCA said, warning there “cannot be a trade-off between quick and easy account opening and robust financial crime controls”.
But Wagner told City A.M. there has been a breakdown in communication between banks and the regulator as digital methods have moved on.
“I think the digital banks – we’ve done a poor job in educating the regulator that preventing financial crime in the 21st century has moved on significantly than from the past paper pushing world of the NatWest, RBS, HSBC and the CMA nine (the UK’s biggest nine lenders),” he told City PM
“There are better ways to do it. The old school methods may not necessarily be the standard way that you have to do things.”
Wagner said many digital banks are now conducting “hundreds if not thousands” more reviews on accounts than they did 20 years ago, but they did not fit the bill of “pushing paper through a once a year periodic review” that regulators had become used to.
“You’d be surprised how long it took us to really convince them [the FCA] that what we were doing was not just as good, but hundreds of times better than the way we used to do it in the past,” he added.
Wagner, whose firm offers business and personal accounts and has onboarded over 1.6m customers and processed £20bn in payments, advocated a more collaborative relationship between digital banks and the regulator on the financial crime methods being deployed by the UK’s app-based banks.
“I’d much rather be friends with the regulator than foes with the regulator. You can get a lot more done when you collaborate with them as opposed to fight them on particular issues that you’re not going to win,” he said.
An FCA spokesperson told City PM yesterday that firms are “increasingly using data and technology in their efforts to prevent financial crime” and it expects “them to have robust controls that reflect the nature of their business and their customers”.
“Our review of challenger banks found some evidence of good practice, for example innovative use of technology to identify and verify customers at speed,” the spokesperson said.
“However, it also found some weakness in controls which can lead to greater risks of financial crime throughout the consumer journey.”