FCA Fines Starling Bank £29 Million for Lax Financial Crime Controls

The Financial Conduct Authority (FCA) has slapped Starling Bank with a £29 million ($38.5 million) fine, citing significant failures in its financial crime controls, specifically its financial sanctions screening processes. According to the UK regulator, Starling Bank “left the financial system wide open to criminals and those subject to sanctions.”

The FCA revealed that the bank “repeatedly breached” an obligation not to open accounts for high-risk customers. These actions prompted a sharp response from the authority, which noted that Starling’s inadequate controls allowed these customers to slip through undetected.

In response to the fine, Starling Bank stated that it fully accepts the FCA's findings. David Sproul, chairman of the digital lender, issued an apology, stating, “We want to assure our customers and employees that these are historic issues,” adding that the bank has since taken measures to address the problems highlighted by the regulator.

Starling, a UK-based challenger bank that has grown rapidly from just 43,000 customers in 2017 to 3.6 million by 2023, saw its anti-money laundering and sanctions framework buckle under this rapid expansion. The FCA said Starling's financial crime measures “did not keep pace with its growth,” leaving gaps that exposed the financial system to risks.

The authority’s concerns about Starling's controls emerged during a 2021 review of so-called “challenger banks” — a category that includes digital lenders like Starling, which compete with traditional banks. During this review, the FCA identified "serious concerns with the anti-money laundering and sanctions framework in place at Starling.”

At that time, the FCA imposed a requirement that Starling should cease opening accounts for high-risk customers until improvements were made. However, the FCA revealed that the bank ignored these restrictions and went on to open more than 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.

In another troubling revelation, the FCA disclosed that in January 2023, Starling discovered its automated screening system had, since 2017, only been screening against a fraction of the total list of individuals subject to financial sanctions. This oversight prompted an internal review, which identified systemic flaws in Starling's financial sanctions framework. Following this discovery, Starling has reported multiple potential breaches of financial sanctions to the relevant authorities.

Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, expressed her concerns over the lax controls in place at Starling. “Starling’s financial sanction screening controls were shockingly lax,” Chambers stated. “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.”

The FCA confirmed that Starling has now implemented programmes aimed at remediating these breaches and strengthening its broader financial crime control framework. Sproul, in his apology, reiterated that the bank had taken steps to resolve the issues and sought to provide reassurance. "We want to assure our customers and employees that these are historic issues," he said, emphasizing that Starling is now fully focused on addressing the regulator's concerns.

Starling, which describes itself as "Britain's first digital bank," has faced mounting scrutiny as it continues to grow. The FCA's findings have cast a shadow over its meteoric rise, raising questions about how challenger banks manage risk in an increasingly complex regulatory environment.

By fLEXI tEAM