Starling Bank has been fined £29m for “appallingly lax” financial crime controls

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

Starling, which has grown rapidly since it was founded in 2014, has also repeatedly breached obligations to deny accounts to potential high-risk customers, the Financial Conduct Authority said on Wednesday.

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

Anti-financial crime efforts did not keep pace with Starling’s growth during the period, with the challenger bank growing from about 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” about Starling’s anti-money laundering and sanctions framework.

The FCA’s National Risk Assessment (NRA) has identified the risk that criminals could be attracted to the faster onboarding process that challenger banks offer compared to traditional big banks.

As a result of the review, Starling agreed to a requirement that restricted the opening of new accounts for high-risk customers until the situation improved.

However, Starling did not comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.

The digital bank would have had to pay a higher fine of almost £41 million, but qualified for a 30 percent discount because it agreed to cooperate with the regulator.

Starling became aware early last year that since 2017 its automated screening system had only checked the names of new and existing customers against a fraction of the full list of those subject to financial sanctions.

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

Since then, Starling has reported several potential financial sanctions breaches to the FCA and other relevant authorities.

Therese Chambers, joint chief executive of enforcement and markets supervision at the FCA, said: “Starling’s controls on financial sanctions screening were shockingly lax.” This left the financial system wide open to criminals and sanctions.

“To make matters worse, the FCA requirements to which it had agreed and which were intended to reduce the risk of Starling facilitating financial crime were not properly adhered to.”

Starling confirmed that it fully accepts the Financial Conduct Authority’s findings. A fine of £29 million was paid as full and final compensation.

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

David Sproul, chief executive of Starling Bank, said: “I would like to apologize for the failings outlined by the FCA and reassure that we have invested heavily to remedy the situation, including strengthening our board leadership and capabilities. “We want our customers and reassure 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 to deliver on our strategy of safe, sustainable growth, supported by a robust risk management and control framework.”