Starling Bank Limited is facing a substantial penalty of £28,959,426 from the Financial Conduct Authority (FCA) due to shortcomings in its financial crime prevention systems. The issues primarily centered around the bank’s financial sanctions screening processes, which failed to adequately protect the financial system from potentially criminal activities.
Despite an impressive growth trajectory, increasing its customer base from about 43,000 in 2017 to 3.6 million by 2023, Starling's measures to combat financial crime did not keep pace. As the FCA scrutinized financial crime controls at challenger banks in 2021, they identified alarming deficiencies within Starling’s anti-money laundering and sanctions frameworks.
The FCA imposed specific restrictions on Starling, prohibiting them from opening accounts for high-risk customers until improvements were made. "Starling failed to comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023," according to FCA statements.
In January 2023, the bank became aware that its automated screening system had been screening its customers against only a small portion of the full list of those subject to financial sanctions since its inception in 2017. A detailed internal review later revealed systemic problems in the bank’s financial sanctions framework, leading Starling to report several potential violations of financial sanctions to the proper authorities.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, highlighted the severity of the situation: "Starling’s financial sanction screening controls were shockingly lax. 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 enforcement case against Starling, which took approximately 14 months to conclude, is a notable example of the FCA enhancing the efficiency of its investigations. For context, the average duration for case closures throughout 2023/24 reached 42 months.
In response to the findings, Starling has initiated programs aimed at rectifying these breaches and improving its financial crime control framework. The FCA remains committed to supervising entities to ensure they have the adequate systems and controls needed to manage financial crime risks effectively.
Starling's cooperation with the FCA was acknowledged in the final fine amount. Instead of the initial penalty proposed at £40,959,426, the bank benefited from a 30% discount because they resolved the issues voluntarily, reflecting a commitment to compliance and improvement.
As financial institutions navigate the challenges posed by rapid growth, the case of Starling Bank serves as a critical reminder of the importance of robust financial crime controls. The FCA’s actions indicate a proactive stance in supervising financial entities, aiming to fortify the integrity of the financial system against illicit activities. With ongoing supervision, the FCA seeks to ensure that similar issues do not arise in the future, safeguarding the sector for all stakeholders involved.