The Starling Bank banking app on smartphones.
Adrian Dennis | AFP via Getty Images
UK financial regulators have fined British digital bank Starling Bank 29 million pounds ($38.5 million) for weaknesses related to its financial crime prevention systems.
In a statement on Wednesday, London’s Financial Conduct Authority said it had fined Starling “for financial crime failures relating to financial sanctions control”. Starling also repeatedly breached the requirement not to open accounts for high-risk customers, the FCA said.
In response to the FCA’s penalty, Starling said it regretted the weaknesses outlined by the regulator and that it had completed due diligence and an in-depth review of customer accounts.
“I would like to apologize for the failings outlined by the FCA and assure that we have invested heavily to put things right, including strengthening our governance and board capabilities,” said David Sproul, chairman of Starling Bank. in a statement on Wednesday.
“We want to reassure our customers and employees that these are historical issues. We have learned the lessons of this investigation and are confident that these changes and the strength of our franchise position us in a strong position to continue to execute on our strategy of safe , sustainable growth, supported by a strong risk management and control framework,” he added.
Starling, one of the UK’s most popular online-only banks, is widely seen as a possible IPO candidate in the coming year. The startup previously signaled its plans to go public, but has moved its expected timing from a previously targeted IPO as early as 2023.
The FCA said in a statement that as Starling expanded from 43,000 customers in 2017 to 3.6 million in 2023, the bank’s measures to tackle financial crime failed to keep pace with this growth.
The FCA began reviewing financial crime controls at digital challenger banks in 2021, concerned that fintech brands’ anti-money laundering and customer compliance systems were not strong enough to prevent fraud, money laundering and avoiding sanctions on their platforms.
After this investigation was first opened, Starling agreed to stop opening new bank accounts for high-risk customers until it improved its internal controls. However, the FCA says Starling failed to comply with this provision and opened more than 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
In January 2023, Starling realized that, as of 2017, its automated system was screening customers against only a fraction of the full list of individuals and entities subject to financial sanctions, the FCA said, adding that the bank had identified systemic issues in the sanctions framework in an internal review.
Since then, Starling has reported multiple potential violations of financial sanctions to the relevant authorities, according to the UK regulator.
The FCA said Starling had already put in place programs to remedy the breaches it identified and to strengthen the wider financial crime control framework.
The UK regulator added that its investigation into Starling was completed in 14 months from opening, compared with an average of 42 months for cases closed in the 2023/24 calendar year.
