On 2 October 2024, the UK Financial Conduct Authority (UK FCA) issued a final notice for a fine of £28,959,426 imposed on Starling Bank Limited for failings in its financial crime controls, particularly relating to anti-money laundering (AML) and financial sanctions screening. The FCA’s investigation revealed deficiencies in Starling’s financial sanctions screening processes and its breach of an agreement to restrict account openings for high-risk customers.
Starling Bank, a digital challenger bank, saw rapid growth, expanding from 43,000 customers in 2017 to over 3.6 million in 2023. However, as its customer base expanded, the bank’s financial crime controls failed to keep up. In 2021, the UK FCA conducted a review of financial crime controls across challenger banks and found concerns with Starling’s anti-money laundering and sanctions screening framework.
As a result of these findings, Starling agreed to a requirement from the UK FCA not to open accounts for high-risk customers until improvements were made. Despite this, the bank continued to open over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023, in direct violation of the UK FCA’s requirement.
In January 2023, Starling discovered that since 2017, its automated sanctions screening system had only screened customers against a small portion of the financial sanctions list. This systemic issue led to multiple potential breaches of financial sanctions, which Starling has since reported to the relevant authorities.
Starling’s automated system failed to screen its customers adequately against the full list of those subject to financial sanctions. This issue went undetected from 2017 to 2023, exposing the financial system to individuals who may have been involved in illegal activities or subject to sanctions. Despite agreeing to a restriction on opening accounts for high-risk customers, Starling breached this agreement and opened 54,000 accounts for 49,000 high-risk customers over a two-year period, significantly increasing the risk of financial crime. Starling reported multiple potential breaches of financial sanctions after conducting an internal review of its financial crime controls.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, condemned Starling’s lack of controls. She stated, “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 fine against Starling Bank serves as a clear warning to financial institutions about the importance of maintaining strong financial crime controls, especially as they grow. The failure to adequately screen customers and comply with FCA requirements not only exposed the bank to legal and reputational risks but also posed a significant threat to the integrity of the UK’s financial system.
For Starling’s customers, particularly those categorised as high-risk, the breaches raise concerns about the bank’s ability to safeguard against financial crime. The bank’s oversight in sanctions screening could have facilitated illicit financial activities, undermining trust in its systems.
Starling’s breaches fall under the FCA’s financial crime regulations, particularly concerning anti-money laundering (AML) and sanctions compliance. The UK FCA Handbook sets out clear rules for financial institutions to implement systems and controls to prevent financial crime, including the proper screening of customers against international sanctions lists. The failings identified in Starling’s case represent violations of these rules, exposing the bank to financial penalties and regulatory action.
Starling’s breach of UK FCA’s requirement, which aimed to mitigate the risks of financial crime by restricting account openings for high-risk customers is seen as the outright breach and led to this sanction.
(Source: https://www.fca.org.uk/publication/final-notices/starling-bank-limited-2024.pdf, https://www.fca.org.uk/news/press-releases/fca-fines-starling-bank-failings-financial-crime-systems-and-controls)
