Starling Bank has been fined £29m by the Financial Conduct Authority (FCA) over “shockingly lax” financial crime controls that left the UK financial system exposed to criminals and sanctioned individuals.
The Financial Supervision Authority’s investigation revealed that the digital bank failed to design and implement appropriate systems to mitigate the risks of financial crimes, especially as it grew rapidly from its first account in 2016 to 3.6 million customers by 2023.
The Financial Conduct Authority (FCA) raised serious concerns about Starling’s anti-money laundering (AML) controls and financial sanctions as early as 2021 during its review of fast-growing challenger banks. In response, Starling agreed to stop opening new accounts for high-risk clients until its systems were improved. However, the bank violated this agreement, opening more than 54,000 accounts for nearly 50,000 high-risk clients, which is a direct violation of FCA requirements.
Additional failures in Starling’s automated screening system between 2017 and 2023 meant that only a small portion of customers subject to financial penalties were properly screened. This oversight exposed the bank to a “material risk” that sanctioned individuals may have opened or continued to maintain accounts with Starling.
The regulator’s findings raise serious questions about Starling’s leadership under its founder, Anne Bowden, who stepped down as chief executive in June 2023 and left the board the following year. The bank appointed a consulting firm to investigate its compliance issues, which reported in September 2023 that senior management at Starling lacked the expertise to enforce compliance with the FCA agreement.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, criticized the bank’s failings, saying: “Starling’s financial sanctions screening controls were shockingly lax. It left the financial system wide open to criminals and sanctioned people.”
Starling has since apologized for its failings, with chairman David Sproul stating that the bank has “invested heavily to get things right, including strengthening the board’s governance and capabilities”. Despite these efforts, the fine raises concerns about Starling’s planned pursuit of a listing on the London stock exchange.
The scandal also led to rival banks considering legal action against Starling over fraudulent reimbursement costs related to fraudulent payments made to Starling customers. In June, The Times reported that the Financial Conduct Authority (FCA) had opened a separate investigation into Starling’s compliance with UK anti-money laundering rules.
Starling expressed regret for the failures that occurred between 2019 and 2023, but the fine represents a major blow to the reputation of the once highly regarded digital bank, casting doubt on its future leadership and regulatory compliance.