Monzo Bank Ltd updates
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The Financial Conduct Authority is investigating Monzo over potential breaches of anti-money laundering laws, as the regulator attempts to crack down on what it sees as widespread weakness in financial crime controls across the UK banking sector.
Monzo revealed the investigation in its latest annual report, which also showed the six-year-old bank kept losses stable in its last financial year despite taking a heavy hit at the start of the pandemic.
TS Anil, Monzo chief executive, said it had been a “really challenging year”, but that the company “has shown extraordinary resilience . . . and more importantly a significant amount of growth as well”.
He said the bank was aiming to become profitable in 2022, but would raise more money from investors “in the next few months” to fuel growth and help it stay ahead of regulatory capital rules as its balance sheet expands. The Bank of England tightened Monzo’s requirements last year so it needs to hold a relatively large amount of capital as a proportion of its assets.
Monzo raised more than £200m over its past financial year, achieving a £1.2bn valuation, and Anil said it was already “fielding a significant amount of inbound interest” from new and existing backers. However, the need to raise more cash forced it to include a warning in the report that there was “material uncertainty” over its ability to continue operating as a going concern for the second year in a row.
The bank came to prominence offering an app-based current account that quickly attracted millions of mainly younger customers, but has been slower to build a traditional lending business and still relies on card transaction fees — particularly from overseas spending — for the majority of its revenues.
The model meant Monzo suffered particularly badly at the start of the pandemic, when mass lockdowns caused a sharp drop in card spending. The challenge forced it to put a new emphasis on controlling costs, including through dozens of redundancies. It also introduced products such as premium accounts that charge a monthly subscription fee.
As a result, its preferred measure of losses rose less than 1 per cent in the 12 months to February, to £114.8m. On a statutory basis, which includes a one-off share award and an impairment charge on a property, net losses rose 13 per cent to £130m. Net revenues climbed 18 per cent to £66m.
The rapid growth of start-up banks such as Monzo has raised concerns that their compliance and “know your customer” processes would not be able to keep up with their pace of customer acquisition. German rival N26 has twice been rebuked by domestic regulator BaFin for failures in its anti-money laundering controls.
The FCA had already started a review of Monzo’s systems last summer but informed the bank that it had also started a formal investigation in May, the same month that it put the wider industry on notice to improve practices.
In a letter to chief executives in May, FCA director of retail banking supervision David Geale warned that the regulator had found “several common weaknesses in key areas of firms’ financial crime systems” and ordered all firms to check their processes.
In March it brought criminal proceedings against NatWest, in the first attempted prosecution of a UK bank under anti-money laundering laws.
Monzo said the FCA was looking into both potential civil and criminal liability, but stressed that the investigation was at an early stage.
The bank said: “The prevention of financial crime is an issue that affects the entire banking industry and one which Monzo is taking extremely seriously. Over the past year we have made major investments in our controls in this area as a priority and will continue to invest heavily in this part of the business.”