LONDON - Britain's financial watchdog said on Friday that some new or 'challenger' banks are failing to make proper checks on their customers to guard against financial crime.

Britain has been encouraging more banks to enter the market to take on HSBC, Lloyds, Barclays and NatWest, the so-called Big Four lenders, which have long dominated retail banking.

Many of the challengers are online only, serving customers via smartphone apps.

The Financial Conduct Authority said that in 2021 it reviewed 6 banks with 8 mln customers and found that some needed to improve how they assess financial crime risk.

Some lenders were failing to check their customers' income and occupation, the FCA said.

"In some instances, challenger banks did not have financial crime risk assessments in place for their customers," the watchdog said in a statement.

The banks should continue enhancing their financial crime systems, the regulator said, without naming them.

(Reporting by Huw Jones; Editing by Clarence Fernandez)