By admin 
The bright new world of challenger banks has been tarnished in recent weeks.
Last week, Metro Bank was fined £16.7 million by the Financial Conduct Authority for four years of money laundering relating to transactions of 60 million.
These, it should be noted, were shortcomings that had been raised by Metro’s own junior staff years before the bank finally resolved them.
Whether you’re one of the exciting new things on the banking scene or one of the long-term investors, you’ll have to pay a significant penalty if you don’t meet your obligations.
What is also notable is that the fine imposed on Metro came just a matter of weeks after the FCA fined another challenger bank, Starling Bank, £28.9 million.
In Starling’s case, the country paid the price for what were called “shockingly lax” sanctions screening processes and “systemic problems” with the bank’s financial sanctions framework.
In the story of the challenger bank, this is a very dark chapter. And if there is to be a happy ending, banks must learn from the costly mistakes.
Metro Bank launched in Britain in 2010, while Starling Bank was founded four years later.
The arrival of what came to be known as the challenger banks was seen as the new faces in town looking to take over some of the business that for years had been owned by the banking industry’s Big Four: Barclays, the NatWest Group, HSBC and Lloyds Banking Group.
And the newcomers were successful, as evidenced by the rise not only of Metro and Starling, but of others intent on doing banking differently.
But that rapid progress was – at least in the case of Metro and Starling – hit by glaring deficiencies in financial control.
It appears that their efforts to expand their customer base have not been matched by the determination to ensure that their screening processes keep pace with this growth.
Their approach to banking may differ – at least in appearance – from the industry’s older names, but they face exactly the same compliance obligations.
Going through the motions and/or doing the bare minimum when it comes to complying with money laundering and other obligations will never be enough in the banking industry.
The lack of a monitoring system that catches the all-important red flags – and ensures they are acted upon – is a good way to get the FCA’s attention.
That’s a lesson Metro and Starling learned too late. Metro calls its problems historic and has made it clear that it is moving forward after drawing a line under what happened.
Starling has highlighted the heavy investment it has made to put things right.
If they want to ensure their problems are not repeated, they will need to take a thorough and considered approach to enforcing the rules.
Starling and Metro’s problems are clear evidence that challenger banks must play by the same rules as everyone else. That may sound obvious, but it clearly wasn’t something Metro or Starling paid much attention to.
At this point it remains to be seen whether any of the other challenger banks have made the same mistakes. It may be that the recent heavy sentences imposed on their two high-profile counterparts will serve as a stark reminder of the need for strong anti-money laundering policies that are regularly reviewed and, if necessary, revised.
This may sound awkward and even old-fashioned to many who see themselves as one of the pioneers of the new banking in Britain. But whether you’re one of the exciting newcomers to the banking scene or one of the long-term investors, you’ll have to pay a significant penalty if you don’t meet your obligations.
Challenger banks have taken a distinctive approach to banking in recent years.
They have made an effort to be seen as doing things differently and offering customers a new experience.
And it’s an approach that has paid off to some extent.
They attracted customers who found the idea of the challenger bank very attractive.
But such banks must also ensure that they do not do anything that would cause them to be seen in a less attractive light by the authorities.
Niall Hearty is a partner at Rahman Ravelli