The UK’s Financial Conduct Authority (FCA) has fined Starling Bank £29 million for serious failings in its financial crime controls.
This penalty underscores the challenges faced by the rapidly growing online-only challenger bank, which has expanded from 43,000 customers in 2017 to over 3.6 million by 2023.
The FCA’s investigation revealed that Starling’s systems to prevent money laundering, fraud, and breaches of financial sanctions were shockingly inadequate, raising questions about its potential initial public offering (IPO).
Inadequate financial crime controls
The FCA’s investigation found significant shortcomings in Starling Bank’s financial crime controls, particularly concerning its sanctions screening and the onboarding of high-risk customers.
Between September 2021 and November 2023, the bank opened over 54,000 accounts for 49,000 high-risk individuals, violating an agreement to halt new account openings for such customers until improvements were made.
Additionally, in January 2023, Starling acknowledged that its automated systems had only been screening a small fraction of clients against the complete list of sanctioned individuals and entities since 2017.
Serious breaches in sanctions screening
Starling’s failure to maintain robust sanctions screening controls led to multiple breaches, which the bank reported to authorities.
In response to these issues, Starling has begun initiatives aimed at strengthening its financial crime control framework.
The FCA’s investigation, which spanned 14 months and concluded more quickly than other similar cases, highlighted the severity of the compliance failures.
Despite these regulatory challenges, Starling is still viewed as a strong candidate for an IPO.
The bank had initially planned to go public in 2023 but postponed its listing due to unfavorable market conditions.
While the FCA fine poses a significant obstacle, Starling has made strides to address its compliance deficiencies by investing heavily in governance and financial crime controls.
Regulatory scrutiny of digital banks
Starling Bank’s difficulties are part of a broader FCA investigation into digital banks, amid growing concerns over the effectiveness of anti-money laundering (AML) and know-your-customer (KYC) systems in the fintech sector.
The rapid growth of Starling has placed additional strain on its compliance infrastructure, contributing to these high-profile regulatory issues.
As fintech companies continue to expand, regulators are emphasizing the need for robust AML and KYC controls to keep pace with their growing customer bases and to prevent financial crimes.
Starling’s commitment to compliance
In the wake of the FCA penalty, Starling Bank issued a public apology and committed to addressing the identified issues.
Chairman David Sproul reassured customers that significant changes have been made to prevent similar failures in the future.
The bank has completed a thorough review of its customer accounts and implemented stricter financial crime controls.
While the £29 million fine represents a setback, Starling’s proactive efforts to enhance its risk management and compliance frameworks may help restore investor confidence as it prepares for a future IPO.
With an improved compliance posture, Starling Bank aims to position itself favorably in the competitive fintech landscape while safeguarding against financial crime.
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