The Financial Conduct Authority in the U.K. has fined Starling Bank £29 million for financial crime failings related to its financial sanctions screening and breaches of a requirement not to open accounts for high-risk customers. In response, Starling Bank acknowledged the failings outlined by the FCA and stated that they have made significant investments to rectify the issues, including strengthening board governance and conducting a thorough review of customer accounts. Despite the historic issues, Starling is confident in its ability to continue with safe and sustainable growth, supported by a robust risk management and control framework, as outlined by David Sproul, the chairman of the bank.
Starling Bank, known as one of the U.K.’s most popular online-only challenger banks, had been seen as a potential candidate for an IPO in the near future. However, the FCA’s findings may impact the timing of their initial public offering plans. As the bank grew rapidly from 43,000 customers in 2017 to 3.6 million in 2023, the FCA found that its financial crime prevention systems did not keep pace with this expansion. The regulator began looking into the financial crime controls of digital challenger banks in 2021, concerned that their anti-money laundering and compliance systems were not strong enough to prevent fraud, money laundering, and sanctions evasion.
The FCA’s investigation into Starling Bank found that the bank failed to comply with a provision to stop opening new accounts for high-risk customers until its internal controls were improved. Between September 2021 and November 2023, Starling opened over 54,000 accounts for 49,000 high-risk customers despite the agreement with the regulator. The bank also discovered in January 2023 that its automated system was only screening clients against a fraction of the full list of individuals and entities subject to financial sanctions since 2017. As a result, Starling reported multiple potential breaches of financial sanctions to relevant authorities, initiating remedial action to address the issues identified.
Despite the hefty fine and regulatory scrutiny, Starling Bank has taken steps to rectify the failings identified by the FCA. The bank has implemented programs to remediate the breaches and enhance its overall financial crime control framework. The FCA highlighted that the investigation into Starling was completed in a relatively short period of 14 months, compared to the average of 42 months for cases closed in the calendar year 2023/24. This efficiency in resolving the matter reflects the seriousness with which both the regulator and the bank have taken the financial crime failings and the commitment to address and rectify them swiftly to strengthen the bank’s operations and compliance.
Moving forward, Starling Bank aims to continue executing its strategy of safe and sustainable growth, supported by a robust risk management and control framework. The bank’s ability to learn from the investigation, make necessary changes, and cooperate with regulators to address the failings will be crucial in rebuilding trust with customers, stakeholders, and potential investors. As the digital banking sector continues to evolve and face increasing regulatory scrutiny, Starling’s response to the fine and the actions taken to enhance its financial crime controls will be closely monitored by industry observers, investors, and regulators to ensure compliance and safeguard against future breaches.
