Monzo encounters regulatory trouble from the Financial Conduct Authority
In a significant move, the UK Financial Conduct Authority (FCA) has imposed a penalty of £21 million on Monzo, a digital-only bank, for weak financial crime controls. The fine, announced in October 2024, follows a series of failings in Monzo's anti-money laundering (AML) systems and customer due diligence processes.
During a period of rapid growth from October 2018 to August 2020, Monzo, which saw a tenfold increase in its customer base from 2018 to 2022, failed to implement sufficient systems and controls to mitigate financial crime risks effectively. This oversight left the bank vulnerable to becoming a conduit for financial crime, as highlighted by white-collar crime lawyer, Richard Cannon.
One of the key issues was the inadequate verification of customers' addresses. Monzo allowed instances of implausible UK addresses, such as London landmarks, PO boxes, foreign addresses with a UK postcode, and multiple account openings without detection. This failure to verify addresses was a significant breach of regulatory requirements.
Moreover, Monzo had Politiically Exposed Persons (PEP) controls between 2018 and 2020, but failed to establish a clear internal definition of what a PEP was, leaving high-risk customers free to open bank accounts and carry out transactions while identification processes and resulting Enhanced Due Diligence (EDD) were in progress.
The FCA found that Monzo's EDD processes were not adequately established for most categories of personal banking customers between 2018 and 2020. This failure to spot suspicious onboarding, including customers using London landmarks as addresses, is emblematic of broader institutional issues.
In response to these failings, the FCA imposed a series of obligations on Monzo for the improvement of its financial risk compliance, primarily to prevent it from accepting or processing new or additional applications for high-risk customers.
The FCA's advanced regulatory scrutiny of challenger banks like Monzo, Starling, and Metro Bank last year indicates that "the FCA is sharpening its teeth when it comes to challenger banks", as noted by Richard Cannon. Starling Bank was fined £29 million by the FCA for financial crime failings in October 2024, and Metro Bank was hit with a £16 million penalty for similar breaches a month later.
In a letter issued in late November 2024, the UK Competition and Markets Authority (CMA) warned Monzo regarding four breaches of the Retail Banking Market Investigation Order 2017. However, it did not deem additional formal enforcement action necessary, instead, it warned the bank that it would closely monitor its future compliance.
The FCA recognized that Monzo had made progress in remediating and enhancing its financial crime framework, but it also stated that it would closely monitor Monzo's future compliance. The £21 million penalty was reduced from an initial £30.1 million as Monzo agreed to resolve the matters.
This penalty serves as a stark reminder that growth is no excuse for weak financial crime controls, as stated by Richard Cannon. Banks must have the systems in place to prevent the flow of ill-gotten gains into the financial system, and Monzo fell far short of this expectation, according to Therese Chambers, the joint executive director of enforcement and market oversight at the FCA.
- The UK Financial Conduct Authority (FCA) imposed a penalty of £21 million on Monzo, a digital-only bank, for weak financial crime controls, as their growth from 2018 to 2022 did not warrant the implementation of sufficient systems and controls to mitigate financial crime risks effectively.
- A key issue in Monzo's case was the inadequate verification of customers' addresses, allowing instances of implausible UK addresses, setting a dangerous precedent in banking-and-insurance and personal-finance industries.
- According to the FCA, Monzo's EDD processes were not adequately established for most categories of personal banking customers between 2018 and 2020, leaving them vulnerable to crime-and-justice activities.
- The FCA's advanced regulatory scrutiny of challenger banks like Monzo, Starling, and Metro Bank in 2024 signifies a stronger stance towards policy-and-legislation compliance in the finance and wealth-management sector.
- Richard Cannon, a white-collar crime lawyer, expressed that this penalty on Monzo serves as a stark reminder to banks, emphasizing that growth should never be an excuse for weak financial crime controls in general-news and politics.
