Starling Bank’s inadequate financial crime controls have culminated in a £29m fine by the FCA, exposing the bank to serious risks.
- The FCA identified Starling’s failure to mitigate financial crime as its customer base expanded significantly.
- Despite an agreement to pause high-risk accounts, Starling opened 54,000 accounts in violation of FCA rules.
- Automated screening failures from 2017 to 2023 left Starling exposed to sanctioned individuals opening accounts.
- The bank’s leadership under scrutiny as it struggles with compliance and future market positioning.
In a significant development, Starling Bank has come under scrutiny after being fined £29 million by the Financial Conduct Authority (FCA) for failing to uphold adequate financial crime controls. The bank’s rapid growth from a single account in 2016 to 3.6 million customers by 2023 revealed substantial shortcomings in its systems designed to mitigate financial crime risks. This rapid expansion presented challenges that Starling struggled to address effectively, raising grave concerns about its anti-money laundering (AML) and financial sanctions protocols.
The FCA had already raised alarms in 2021 during its review of rapidly expanding challenger banks, highlighting specific deficiencies in Starling’s approach. In response to these concerns, Starling had committed to suspending the opening of new accounts for high-risk customers until it could implement more robust systems. However, the bank breached this agreement by opening more than 54,000 accounts for nearly 50,000 high-risk individuals, directly contravening FCA’s stipulations. This breach underscores significant regulatory challenges faced by the bank.
Moreover, the period between 2017 and 2023 saw critical lapses in Starling’s automated screening systems, leaving the institution vulnerable to financial crimes. Only a small portion of customers under financial sanctions were adequately screened, creating a material risk of individuals under sanctions opening or maintaining accounts. This oversight exposed serious vulnerabilities within the bank’s operations.
The findings prompted intense scrutiny of the bank’s leadership, particularly under its founder Anne Boden, who resigned as CEO in June 2023 and eventually left the board. A consultancy firm’s investigation in September 2023 reported that Starling’s senior management was lacking in the experience necessary to comply with FCA standards, further complicating the bank’s regulatory standing.
Following these revelations, Therese Chambers, FCA’s joint executive director of enforcement and market oversight, stated, “Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions.” In an attempt to address these issues, Starling has issued an apology, with Chairman David Sproul emphasizing substantial investments in strengthening board governance and capabilities. Despite these efforts, the magnitude of the fine has raised concerns regarding Starling’s ambitions to pursue a listing on the London stock market.
Furthermore, the scandal has repercussions extending beyond regulatory fines. Rival banks are contemplating legal actions against Starling for reimbursement costs related to fraudulent payments directed towards Starling customers. Additionally, in June, reports indicated that the FCA initiated another investigation into Starling’s adherence to the UK’s anti-money laundering regulations. The cumulative effect of these challenges now poses a significant threat to the once-prestigious reputation of Starling Bank, bringing into question its future leadership and compliance capabilities.
The £29m fine has cast a shadow over Starling Bank’s reputation, posing significant challenges for its leadership and compliance efforts.
