Sanctions and PEP Screening for Challenger Banks and Fintechs

The landscape for banking services has changed beyond recognition in the last few years. The award of the first retail banking license for 100 years to Metro Bank in 2010, opened the flood gates, and since then ever more challenger banks and fintechs are disrupting the market.

Many challenger banks are targeting specific customer segments rather than being a one-stop-shop for all. Banks such as Starling and Monzo have targeted the smartphone generation whilst others have tailored their offerings to meet the requirements of small and mid-size enterprises (SMEs), who have sometime struggled to find the services they need from traditional banks.

The line between a bank and a fintech is often blurred. Some (for example Revolut) started out primarily as a currency exchange platform before offering more standard banking products such as current accounts. Other firms are more definitely at the fintech end of the spectrum such as SumUp, Klarna or ClearBank which offer alternative products and services.

Advanced technology developed by these new players makes it easier and faster for new customers to register and gain access to financial products. New technology and the race to innovate has accelerated the shift toward digital banking, with over 76% of all UK residents using internet banking in the first quarter of 2020. [i]

The increasing pace of technical change, and the evolving arm’s length nature of the new banking relationship brings new challenges. The days of the bank manager who knew his customers by name have long gone, but as customers become increasingly remote, how do you know your customer when you have never met them, and will perhaps never even talk to them?

The vast majority of these new (or not so new) firms are subject to oversight by one or more regulators, such as the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in the UK. The challenge for regulators is to see evidence that a new bank or fintech has robust controls in place to make sure that they are only doing business with reputable people and businesses.

One such control – and a key one – is screening for sanctioned individuals and politically exposed persons (PEPs). Many new market entrants underestimate the risk of getting screening wrong and the difficulty getting it right.

For many challenger banks and fintechs, particularly those based in the UK, the likelihood of a sanctioned individual applying to open an account is very low. However, the penalties for getting it wrong can be huge and include large fines, regulatory intervention, and reputational damage. If the firm has any US connections, for example investors, the risk is even higher due to the more aggressive approach of the US authorities in this area.

The challenge is similar for PEPs. Regulators will expect firms to be able to identify PEPs and individuals related to PEPs in their customer base and manage the related risk accordingly.

Finding these riskier customers is not easy and usually requires investment in an established and expensive  screening system. Start-ups often make the mistake of taking the screening vendor’s default options – a decision that many come to regret later. Most screening platforms were designed for traditional banking firms and the default options will not necessarily be suitable for a new, different business model. Moreover, regulators are increasingly damning of any firm that does not carefully tailor and tune systems and controls to match their particular risk position.

At SQA Consulting, we have many years of experience of tuning, testing and assuring screening systems. We have worked with many of the world’s established global banks and we also work with fintech’s of all shapes and sizes.


To give an insight into how we work, we will soon be making available some taster apps which give a view of some of the capabilities of SQA Consulting’s processes and tools. Firms will be able to use these to help understand and improve their data and screening . For example:

  • The Company Name Word Analysis tool uses a huge library of corporate identifiers from around the world to remove ‘noise words’ from a company name – something that is critical for identifying a match.
  • The Global Address Lookup tool which can determine which country an address belongs to.
  • The Ethnic Name Origin tool which is a powerful facility whereby names are used to determine the ethnic origin of an individual.


We will be offering free access to these useful tools, so if you think they can help you, please register to have a go. Watch this space for further information.

Wherever a bank or Fintech sits in terms of maturity of its screening systems SQA Consulting can provide support, whether that’s helping to choose the screening vendor and lists that most suit your customer base, helping to tune your screening systems to an organisation’s individual risk profile and appetite, or providing an audit and assurance function for established systems.


We also offer a range of innovative and market leading solutions to support your screening process such as our:


If you would like to discuss any of the issues described in this article, please contact   

[1] According to data from the Office for National Statistics Internet Access – Households and individuals data set 2020. 

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