Financial Regulatory Authority Imposes £21 Million Penalty on Monzo
In a significant move, the Financial Conduct Authority (FCA) has imposed a £21,091,300 fine on Monzo Bank Ltd for inadequate anti-financial crime systems and controls between October 2018 and August 2020. The FCA's findings revealed systemic inadequacies in Monzo's anti-financial crime controls during a period of rapid growth, insufficient customer risk assessment and monitoring, and failure to comply with FCA restrictions on high-risk account openings.
During this period, Monzo's customer base increased almost tenfold from around 600,000 in 2018 to over 5.8 million in 2022. However, the bank's rapid growth was not matched by improvements in its financial crime controls, meaning its systems did not keep pace with the increases in customer volume and product offerings.
The FCA required a comprehensive, independent review of Monzo's financial crime framework in August 2020, following repeated breaches of conditions preventing the bank from opening accounts for high-risk customers. Despite these requirements, Monzo failed to comply, onboarding over 34,000 high-risk customers between 2020 and June 2022.
The FCA highlighted that Monzo had made incorrect assumptions about the nature of many customers and products, which contributed to poorly organised and ineffective risk management systems. This breached Principle 3 of the FCA’s Principles that require firms to manage their affairs with adequate risk management.
In response to the findings, Monzo has established and completed a financial crime change program to remediate and enhance its wider financial crime control framework. The bank's Group CEO, TS Anil, acknowledged historical issues with financial crime controls, which ended three years ago and have led to improvements in the bank's controls.
Monzo is not alone in facing financial crime issues. TS Anil states that financial crime is an industry-wide issue and Monzo is committed to stopping it. The FCA has prioritized financial crime as a focus area for retail banks in its 2024 supervisory strategy.
Despite the fine, Monzo continues to expand its offerings. It has partnered with Qover to provide a simple, tailored travel insurance solution for Monzo Premium account holders in the UK. Additionally, Monzo has launched Monzo Home Insurance, a combined buildings and contents policy.
Monzo's growth shows no signs of slowing, with TS Anil mentioning the bank approaching 13 million customers. However, the FCA's fine serves as a reminder that maintaining robust financial crime controls is crucial for any financial institution, especially those experiencing rapid growth.
[1] Financial Conduct Authority (FCA), "Monzo Bank Ltd - fine for inadequate anti-financial crime systems and controls," 2022. [2] Financial Conduct Authority (FCA), "Monzo Bank Ltd - failure to comply with a requirement preventing the opening of accounts for high-risk customers," 2022. [3] Financial Conduct Authority (FCA), "Monzo Bank Ltd - breach of Principle 3 of the FCA’s Principles for Businesses," 2022. [4] Financial Conduct Authority (FCA), "Monzo Bank Ltd - use of limited and implausible information in customer onboarding," 2022.
- The insurtech industry is not immune to challenges in the finance sector, as evidenced by Monzo's partnership with Qover to offer travel insurance, despite facing a significant fine for inadequate anti-financial crime systems and controls.
- The FCA's 2024 supervisory strategy prioritizes combating financial crime across the banking-and-insurance industry, acknowledging it as an industry-wide issue, much like the rapid growth experienced by Monzo and its subsequent regulatory scrutiny.
- The Monzo case underlines the importance of technology in financial institutions, emphasizing the need for effective risk management systems and continuous improvement in response to events such as customer base expansions and new product offerings.
- The lifestyle of a growing business in the general-news sphere is not solely defined by expansion and product launches, but also by a commitment to maintaining robust financial crime controls, as demonstrated by Monzo's post- fine initiatives to remediate and strengthen its financial crime control framework.
