The banking watchdog has issued a warning over a bogus British bank after a Kiwi woman was caught trying to pay off her credit card using one of its cheques.

The Banking Ombudsman said it had warned government agencies and the finance sector after it investigated a case involving a cheque from bogus bank WeRe Bank.

It says the "bank" was set up last year in the United Kingdom as a common law bank where customers send it an IOU of £150,000 (NZ$308,668) and then pay membership fees of £10 a month (NZ$29.50) for an account.

WeRe Bank then supplies the customer with a cheque book to write 'cheques' drawn against the IOU to pay debts.

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But Banking Ombudsman Nicola Sladden said WeRe was not a registered bank or even a company but was run online by one person with a mobile number.

Its cheques were not legal tender and could not be used to pay debts.

"There will be no joy for anybody who thinks they are on to a winner with a WeRe bank cheque book.

"It sounds too good to be true, because it is."

Sladden said this was the first complaint it had dealt with in New Zealand but there had been other cases in the UK and Canada.

British regulator the Financial Conduct Authority has also issued a warning about the bank.

Sladden said people who tried to use the cheques would face all the normal risks of late payment from additional charges to repossession.

In the case of the New Zealand woman the bank refused to honour the cheque and then closed her account after its relationship with her deteriorated.

A complaint was then made about the bank's decision to refuse the cheque and whether it could end the relationship with her.

The Ombudsman determined that the bank had the right to end its banking relationship with the customer and had followed the correct process for doing so.