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

October 3, 2024

Starling Bank has been fined £29 million by the Financial Conduct Authority (FCA) for “shockingly lax” financial crime controls that left the UK’s financial system exposed to criminals and sanctioned individuals.

The FCA’s investigation revealed that the digital bank failed to design and implement adequate systems to mitigate financial crime risks, particularly as it rapidly grew from its first account in 2016 to 3.6 million customers by 2023.

The FCA raised serious concerns about Starling’s anti-money laundering (AML) and financial sanctions controls as early as 2021 during a review of fast-growing challenger banks. In response, Starling agreed to halt opening new accounts for high-risk customers until its systems were improved. However, the bank breached this agreement, opening more than 54,000 accounts for nearly 50,000 high-risk customers, a direct violation of FCA requirements.

A further failure in Starling’s automated screening system between 2017 and 2023 meant that only a fraction of customers subject to financial sanctions were properly screened. This oversight exposed the bank to a “material risk” that individuals under sanctions may have opened or continued to hold accounts with Starling.

The regulator’s findings raise serious questions about Starling’s leadership under its founder, Anne Boden, who stepped down as CEO in June 2023 and left the board the following year. The bank had hired a consultancy firm to investigate its compliance issues, which reported in September 2023 that Starling’s senior management lacked the necessary experience to enforce compliance with the FCA’s agreement.

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

Starling has since apologised for its failings, with chairman David Sproul stating that the bank has “invested heavily to put things right, including strengthening our board governance and capabilities.” Despite these efforts, the fine raises concerns about Starling’s planned pursuit of a London stock market listing.

The scandal has also led to rival banks considering legal action against Starling for fraud reimbursement costs related to fraudulent payments made to Starling customers. In June, The Times reported that the FCA had opened a separate investigation into Starling’s compliance with the UK’s anti-money laundering rules.

Starling has expressed regret for the failures that occurred between 2019 and 2023, but the fine represents a significant blow to the reputation of the once highly regarded digital bank, casting doubt on its future leadership and regulatory compliance.