U.K. financial regulators have imposed a £29 million ($38.5 million) fine on British digital lender Starling Bank for deficiencies in its financial crime prevention systems.
The Financial Conduct Authority (FCA) issued a statement on Wednesday, indicating that Starling Bank was penalized “for financial crime failings related to its financial sanctions screening.” The FCA highlighted that Starling had repeatedly violated a requirement not to open accounts for high-risk customers.
In response, Starling Bank expressed regret for the shortcomings cited by the regulator and noted that it had conducted detailed screening and an in-depth review of customer accounts. David Sproul, Chairman of Starling Bank, issued a statement on Wednesday, apologizing for the identified failures and assuring that significant investments had been made to rectify the issues, including enhancements in board governance and capabilities.
Sproul further reassured customers and employees that these issues were historical and emphasized that the lessons from the investigation had been learned. He stated that the improvements and the strength of the bank’s franchise positioned it well to continue its strategy of safe, sustainable growth, underpinned by a robust risk management and control framework.
Starling, one of the U.K.’s prominent online-only challenger banks, has been viewed as a potential candidate for an initial public offering (IPO) in the near future. The startup had previously indicated plans to go public but had postponed its target timeline from an earlier projection of as soon as 2023.
The FCA noted that as Starling expanded its customer base from 43,000 in 2017 to 3.6 million in 2023, its financial crime prevention measures did not keep pace with this growth. The FCA started investigating the financial crime controls at digital challenger banks in 2021, driven by concerns that fintech companies’ anti-money laundering and know-your-customer compliance systems were insufficient to prevent fraud, money laundering, and sanctions evasion.
Following the onset of this investigation, Starling had agreed to suspend the opening of new accounts for high-risk customers until its internal controls were improved. However, the FCA reported that Starling failed to adhere to this agreement, opening over 54,000 accounts for 49,000 high-risk customers from September 2021 to November 2023.
In January 2023, Starling discovered that, since 2017, its automated system had been screening clients against only a portion of the full list of individuals and entities subject to financial sanctions. This led to the identification of systemic issues within its sanctions framework, as revealed in an internal review. Since then, Starling has reported several potential breaches of financial sanctions to the relevant authorities.
The FCA stated that Starling has since initiated programs to address the identified breaches and enhance its broader financial crime control framework. The investigation into Starling was completed in 14 months, a notably shorter duration than the average of 42 months for cases closed in the calendar year 2023/24.
