Regulators globally have increased their scrutiny of digital banks in recent years, particularly focussing on anti-money laundering (AML) lapses and financial crime controls.
Digital banks have become the epicentre of purchasing goods and services, particularly for underserved groups. These banks address the gaps with traditional banks and prioritise user-friendly digital experiences, convenience, streamlined services, real-time payments and low fees.
“The UK is seeing a seismic shift in how people pay, as digital wallets become a part of everyday life for many people,” said FCA’s chief executive Nikhil Rathi. “We want to make sure we can maximise the opportunities and benefits for consumers and businesses while protecting against any risks this technology may present.”
The popularity of digital banks has not gone unnoticed by regulators who are responsible for keeping financial risks down and the system stable. Many believe digital banks models should follow the same regulatory standards as traditional banks.
This has led to several enforcement actions and fines against challenger banks.
In July 2025, a digital bank was fined over £21mil by the FCA for inadequate financial crime controls and in April 2025, another was fined €3.5mil by the Bank of Lithuania for gaps in AML systems.
Others were fined £29mil for “shockingly lax” financial sanctions screening and serious transaction monitoring and AML lapses in 2024.
These numbers suggest that digital banks primary focus on high growth is allowing gaps in regulatory compliance processes to be missed.
Robust compliance frameworks shouldn’t be a second thought to maintain consumer trust and business integrity.
Key digital banking regulatory frameworks
- GDPR (General Data Protection Regulation): This aims to uphold the highest standards of data protection and privacy, ensures robust security measures and consent from customers before allowing firms to process or store data.
- PSD3 (Payment Services Directive 3): Modernises payment services and aims to improve consumer protection, competition and security.
- Anti-money laundering directives: Banks need to make sure they know who their customers and beneficial owners are and detect money laundering or terrorist financing.
- Basel III: In response to the 2008 financial crisis, this is designed to strengthen the operational resilience of banks, improve risk management practices and increase transparency to prevent financial collapses.
How to survive the regulatory storm as a growing digital bank
Many enforcement actions highlight banks’ repeated shortcomings in establishing and operating effective frameworks for customer due diligence, risk assessment, transaction monitoring, and sanctions screening.
- Make compliance as agile as your growth
Digital banks are built on speed and scale. Compliance frameworks need to keep up. Real-time monitoring, automated rule interpretation, and continuous updates can prevent gaps from turning into penalties.
- Strengthen AML and financial crime controls
Know-your-customer (KYC) and transaction monitoring can’t remain static. With AI-driven regtech, banks can dynamically adapt controls, flag suspicious patterns early, and reduce false positives without slowing down customer experience.
- Map regulations directly to your business processes
It’s not enough to “know” the rulebook, you need to know what it means for you. Tools that automatically map obligations to policies, procedures, and controls can highlight blind spots and prevent costly oversights.
- Stay ahead of regulatory change
Rules shift fast. From PSD3 to evolving AML directives, digital banks need horizon-scanning capabilities that translate new requirements into concrete actions before regulators come knocking.
- Build trust with transparency
Trust is the currency of digital banking. Customers don’t just want convenience, they want to know their money and data are safe. Embedding compliance into the customer journey strengthens reputation as much as it satisfies regulators.
Choose FinregE today
Digital banks have limited resources typically; a large fine can not only damage reputation but also the financial health of the company.
This doesn’t have to happen.
Implement FinregE’s AI-driven regulatory compliance to:
- Automate compliance processes, reducing manual effort and human error.
- Map regulations to policies and controls in real time, exposing gaps before regulators do.
- Forecast and monitor regulatory changes, turning uncertainty into action.
- Streamline AML and KYC processes with intelligent workflows that balance risk and customer experience.
For digital banks, every enforcement action avoided means more time, money, and energy to focus on what you do best: delivering brilliant, user-first financial services.
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