Starling Bank fined £29m amid ‘shockingly lax’ financial crime controls

Starling Bank has been fined £29 million for “shockingly lax” financial crime controls, which “left the financial system wide open to criminals” over a four-year period.

Starling, which has grown rapidly since its founding in 2014, also repeatedly failed to comply with a requirement to reject accounts to potential high-risk clients, the Financial Conduct Authority said on Wednesday.

The failures occurred at Starling between December 2019 and November 2023.

Measures to tackle financial crime did not keep pace with Starling’s growth during the period, with the challenger bank growing from around 43,000 customers in 2017 to 3.6 million in 2023.

When the FCA reviewed financial crime controls at challenger banks in 2021, it found “serious concerns” with the anti-money laundering and sanctions framework in place at Starling.

The FCA’s National Risk Assessment (NRA) identified the risk that criminals may be attracted to the faster onboarding process offered by challenger banks compared to traditional banks.

As a result of the review, Starling agreed to a requirement that prevented it from opening new accounts for high-risk clients until this improved.

However, Starling failed to comply and opened more than 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.

The digital bank would have suffered a larger fine of almost £41m, but qualified for a 30 per cent discount because it agreed to cooperate with the regulator.

Starling realized early last year that its automated screening system, since 2017, had only been screening the names of new and existing clients against a fraction of the full list of those subject to financial sanctions.

An internal review identified “systemic issues” in Starling’s financial sanctions framework, including the assessment of its risks, financial sanctions policies and procedures, and testing and calibration of detection systems.

Starling has since reported multiple potential financial sanctions breaches to the FCA and other relevant authorities.

Therese Chambers, joint executive director of enforcement and market supervision at the FCA, said: ‘Starling’s financial sanctions screening controls were surprisingly lax. It left the financial system wide open to criminals and those subject to sanctions.

“This was compounded by failing to adequately comply with the FCA requirements it had agreed to, which were put in place to reduce the risk of Starling facilitating financial crime.”

Starling confirmed that he fully accepts the conclusions set out by the Financial Conduct Authority. He has paid a fine of £29 million in full and final settlement.

The digital bank said it has introduced extensive additional safeguards to ensure the bank complies with regulatory requirements in response to the FCA investigation.

David Sproul, chairman of Starling Bank, said: “I would like to apologize for the failings highlighted by the FCA and reassure you that we have invested heavily to put things right, including strengthening the governance and capabilities of our board.” We want to assure our customers and employees that these are historical issues.

“We have learned the lessons from this investigation and are confident that these changes and the strength of our franchise put us in a strong position to continue executing our strategy for safe and sustainable growth, supported by a robust risk management and control framework.”