Photo source: Financial Promoter
Goldman-backed Starling Bank has been penalised £29 million (approximately NZD $61.8 million) by U.K. financial regulators due to shortcomings in its measures to prevent financial crimes.
On Wednesday, the Financial Conduct Authority (FCA) announced the fine, citing failures in Starling’s financial sanctions screening processes. The FCA also pointed out that the bank had repeatedly violated regulations prohibiting the opening of accounts for high-risk clients.
“Starling’s financial sanction screening controls were shockingly lax,” stated Therese Chambers, joint executive director of Enforcement and Market Oversight. She emphasised that these deficiencies left the financial system vulnerable to criminal activities and individuals subject to sanctions.
In light of the FCA’s findings, Starling expressed regret for its shortcomings and noted that it has undertaken comprehensive screening and a thorough review of customer accounts.
“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,” said David Sproul, chairman of Starling Bank.
“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,” he added.
Starling Bank, recognised as one of the U.K.’s leading online-only challenger banks, has been considered a potential candidate for an initial public offering (IPO) within the next year. Although it previously indicated plans for a public listing, it has since postponed its timeline from an earlier target of launching an IPO as soon as 2023.
Furthermore, the FCA noted that as Starling’s customer base expanded from 43,000 in 2017 to 3.6 million in 2023, its efforts to combat financial crimes did not keep pace with this growth.
The FCA began scrutinising financial crime controls at digital banks in 2021 due to concerns that many fintech companies lacked adequate anti-money laundering and know-your-customer compliance systems capable of preventing fraud and sanctions evasion.
Following the initiation of this investigation, Starling agreed to refrain from opening new accounts for high-risk customers until it could enhance its internal controls. However, the FCA reported that Starling failed to comply with this requirement, having opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
In January 2023, Starling discovered that its automated screening system had only been checking clients against a limited portion of the full list of individuals and entities subject to financial sanctions since 2017. An internal review revealed systemic issues within its sanctions framework.
Since then, Starling has reported multiple potential violations of financial sanctions to relevant authorities. The FCA indicated that Starling has already initiated programs to address these breaches and improve its overall financial crime control framework.