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

The Financial Conduct Authority (FCA) has fined digital challenger bank Starling £28.96m for failings related to its financial crime controls, which the City regulator called “shockingly lax”.

The FCA said on Wednesday that Starling’s financial crime measures “did not keep pace” with its growing customer base – which surged from 43,000 in 2017 to 3.6m in 2023.

Starling, founded in 2014, failed to comply with an FCA requirement restricting its opening of new accounts for “high-risk customers”, the regulator said.

The FCA found the bank had opened more than 54,000 accounts for 49,000 “high-risk customers” between September 2021 and November 2022.

Starling had agreed to the requirement after an FCA review into financial crime controls at challenger banks in 2021 “identified serious concerns” with its anti-money laundering and sanctions framework, the watchdog said.

The FCA added that Starling had also reported multiple “potential breaches of financial sanctions” to relevant authorities after an internal review found “systemic issues” in its financial sanctions framework.

Starling became aware in January 2023 that its automated system had, since 2017, only been screening customers “against a fraction” of the full list of those subject to financial sanctions, the FCA said.

The fine was reduced from £40.96m after Starling agreed to resolve the issues.

David Sproul, Starling’s chairman, commented: “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. We want to assure our customers and employees that these are historic issues.

“We have learned the lessons of 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 of safe, sustainable growth, supported by a robust risk management and control framework.”

FCA ramps up scrutiny of neobanks

Its first financial penalty against a neobank, the FCA’s fine underscores its close scrutiny of digital lenders’ crime controls in recent years. Russia’s invasion of Ukraine has raised the amount of due diligence required to navigate sanctions.

Separately, Starling’s rival Monzo said in its June annual report that the FCA was conducting a civil probe into its money laundering controls, having downgraded it from a criminal matter.

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said on Wednesday: “Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions.”

“It compounded this by failing to properly comply with FCA requirements it had agreed to, which were put in place to lower the risk of Starling facilitating financial crime.”

She noted that Starling had launched “programmes to remediate these breaches and to enhance its wider financial crime control framework”.

The FCA’s fine marks an early challenge for Starling’s new chief executive Raman Bhatia, the former boss of energy supplier Ovo who joined the bank in June.

His appointment came after Starling’s founder Anne Boden stepped down as CEO last June. The bank said her decision was driven by a desire to split up her role as a major shareholder and CEO.

In July, Boden resigned from Starling’s board to pursue an artificial intelligence venture.

“The FCA wants challenger banks to put resources into financial crime control, commensurate with a bank’s expansion,” said Abdulali Jiwaji, a partner and banking litigator at Signature Litigation.

“There can be a risk-based approach to anti-money laundering controls, but these need to be fit for purpose as the business grows.”