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Starling Bank has received a fine of £29mn from the UK financial regulator, which accused the challenger bank of “shockingly lax” controls against financial crime.
Starling’s efforts to identify potential money laundering, sanctions breaches and screen high-risk customers “did not keep pace” with the bank’s growth, the Financial Conduct Authority said on Wednesday. Starling grew from about 43,000 customers in 2017 to 3.6mn in 2023, the watchdog said.
“Starling’s financial sanction screening controls were shockingly lax,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA. “It left the financial system wide open to criminals and those subject to sanctions.”
The FCA said Starling had repeatedly failed to comply with an earlier agreement it made with regulators to stop opening new accounts for high-risk customers until its financial crime controls had improved.
Despite the agreement, the bank opened 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023, the watchdog said.
Starling realised in January 2023 that its automated screening system had for six years “only been screening customers against a fraction of the full list of those subject to financial sanctions”, the FCA said.
This led to an internal review that found “systemic issues” in its financial sanctions framework, with the bank since reporting “multiple potential breaches of financial sanctions” to authorities.
The fine, which is the first of its type against a digital bank, comes as the watchdog is stepping up its scrutiny of neobanks’ financial-crime controls.
The FCA warned in 2022 that a surge in reports to the National Crime Agency had raised “concerns about the adequacy of [neobanks’] checks when taking on new customers”. The watchdog is separately conducting a civil probe into money-laundering controls at Starling’s rival, Monzo Bank, having downgraded it from a criminal matter, the bank said in its annual report in June.
The FCA has issued some of its biggest fines in recent years for failings in big banks’ systems to stop financial crime and money laundering, such as the £108mn penalty for Santander UK in 2022 and a £265mn fine for NatWest in 2021.
Claire Cross, a partner at law firm Corker Binning, said: “I expect we will see more action by the regulator against fintechs. They represent an area of the market that has been under close scrutiny by the FCA.”
Start-ups have struggled to scale up their financial crime controls at the same speed as they have attracted new users, while a wave of sanctions imposed after Russia’s 2022 invasion of Ukraine raised the amount of due diligence banks have to conduct on new customers.
Starling co-operated with the FCA and therefore qualified for a 30 per cent discount on a fine that otherwise would have been as high as £41mn, according to the findings.
Starling chair David Sproul said: “I would like to apologise for the failings outlined by the FCA and to provide reassurance that we have invested heavily to put things right, including strengthening our board governance and capabilities.”
As well as Sproul, who led the UK practice of Big Four accountancy firm Deloitte, Starling’s heavyweight board includes Tracey Clarke, the former head of Europe and Americas at Standard Chartered.
Kathryn Westmore, a senior research fellow at the Centre for Finance and Security at the Royal United Services Institute think-tank, noted that the FCA was “ very critical” of Starling’s senior management.
The FCA said that the bank’s “senior management as a whole lacked the experience and capability” to effectively implement their voluntary agreement around high-risk customers with regulators.
“Challenger banks and fintechs often seem to struggle to get senior buy-in when it comes to financial crime compliance, including understanding the threats and ensuring there are adequate resources for compliance,” said Westmore.
“This is a substantial fine and one that many firms, particularly digital banks and payment firms, should take notice of,” she added.
Starling founder Anne Boden stepped down as chief executive last year after a row with investors over fund manager Jupiter’s decision to sell its holding in the bank at a price that cut Starling’s valuation from £2.5bn to between £1bn and £1.5bn in February 2023.
Sproul said the failings were “historic issues” and that it had learned the lessons of this investigation.
