The Financial Conduct Authority told the challenger bank in May that it is looking into potential problems.
The City watchdog has launched a money-laundering probe into Monzo a year after the challenger bank revealed concerns over its financial crime procedures.
In its annual report, Monzo said it is facing a Financial Conduct Authority (FCA) investigation into its compliance with financial crime regulation.
The probe is looking at whether the bank has followed the UK’s money laundering regulations, as well as complying with FCA rules on money laundering and principles for business.
Investigators are looking at the period from October 1 2018 to April 30 2021 and could bring criminal charges.
The bank, which has previously highlighted concerns over the way it deals with financial crime, revealed little else about the probe.
It was approached on May 7 by the FCA, and said the investigation might result in stricter financial crime requirements.
“The FCA are reviewing and investigating our compliance with financial crime regulation. We’re co-operating with them, but we expect it to take time to resolve,” Monzo said.
“This could have a material negative impact on our financial position, but we won’t know when or what the outcome will be for some time.”
In its last annual report, which was released a year ago, Monzo said it was looking into its financial crime procedures after a review by the regulator.
It said then that “at the moment they don’t highlight a need to provide for customer detriment due to past actions”.
On Friday, Monzo said it has taken steps to crack down on fraud, which has ballooned during the pandemic.
The bank introduced a “confirmation of payee” feature to its app to warn people when the name on an account does not match the name of the person they are sending money to.
It also said it is investing more in its financial crime controls and has an “ongoing project to make sure we can meet, then exceed, our regulators’ expectations”.
Monzo paid £9.5 million in the most recent financial year to compensate customers who fell victim to financial crime despite taking reasonable steps to protect themselves. This figure increased from just £2.7 million in the year before.
It is also spending more on knowing its customers following the review.
The bank said it attracted one million new customers in the financial year, taking its total to four million. Revenue increased 18% to £79 million.
Pre-tax loss increased from £115 million to £130 million during the period.