Starling Bank Fined £29M For Major Failures in Financial Crime Controls

Starling claimed it had paid a final settlement and apologized for its mistakes.

Starling Bank has been fined £29 million for extremely weak financial crime controls that allowed unrestricted access to the banking system for criminals and sanctioned individuals.

Financial Conduct Authority (FCA) accused Starling, one of the most popular challenger banks in the UK, which has expanded swiftly but couldn’t tackle financial crime.

The online bank founded by Anne Boden in 2014 grew from 43,000 customers in 2017 to 3.6 million in 2023 with the support of Goldman Sachs.

The law mandates banks to conduct meticulous screening of new customers to avoid fraud and money laundering. When the FCA assessed the financial crime control in 2021, they found concerns with Starling’s anti-money laundering and sanctions system.

The bank has consented not to open accounts for high-risk customers but still opened more than 54,000 accounts for 49,183 high-risk customers between September 2021 and November 2023 and earned £900,000 in fees and interest.

The bank found in January 2023 that, since 2017, its automated screening system had only been screening customers to just a fraction of the individuals subjected to financial sanctions.

The bank reported several violations of financial sanctions after an internal examination discovered systemic problems with its framework.

Executive Director Therese Chambers of the Financial Crimes Authority stated that Starling’s financial sanction screening controls were lenient. It gave criminals unrestricted access to the banking system. It became worse when they neglected to follow the FCA standards implemented to reduce the possibility of financial crime.

Starling claimed it had paid a final settlement and apologized for its mistakes. It further stated that it increased security, carefully investigated customer accounts, and rescreened transactions.

The bank’s chair, David Sproul, expressed regret for the shortcomings explained by the FCA and gave assurances that necessary efforts to correct the situation are made, including strengthening the skills and governance of the board.

The Financial Crime Regulatory Authority (FCA) found that Starling had incorrectly updated its financial crime risk control. Due to that, 294 accounts previously removed by the bank due to financial crime were opened. Of these customers, 112 had a complete or partial match on fraud prevention, and 161 were accused of previous suspicious activity, which alerts the authorities about the chances of money laundering or terrorism funding.

The bank did not check its clients’ records when they were sanctioning people from other countries, including the US, despite payments made in dollars.

Since Moscow invaded Ukraine in February 2022, the US, the UK, and the EU have imposed many sanctions against different Russian individuals. However, Starling’s customers or potential clients were screened against sanctions records belonging to UK citizenship or residency.

It meant that there was a real chance that the list of Russian citizens would not have been able to create or keep accounts. Starling discovered that at least one person on the sanctions list opened an account with the bank.

Starling added 15,000 new business clients per month during the Covid-19. Theodore Agnew, a former minister, charged the bank in 2022 for neglecting to screen the borrowers carefully before approving government-sponsored loans.

Starling’s founder resigned as CEO in May of last year to protect the online bank from conflicts of interest arising since she was a significant stakeholder in the company. She had a less than 5% investment in Starling but resigned as a non-executive director in June to manage her company, AI by Boden.

The bank has stated that it intends to go public on the stock market but put it on hold due to a decline in interest in the financial markets.

The FCA noted that because Starling had agreed to settle these issues, it was eligible for a 30% discount under its procedures, even though the punishment would have been close to £41 million.