Starling Bank, the sponsor behind Manchester’s ‘Burnham Bikes,’ has incurred a substantial fine of £28.96 million. This penalty was imposed by the Financial Conduct Authority (FCA) due to significant shortcomings in the bank’s financial crime controls.
The FCA’s investigation revealed that Starling Bank’s measures were grossly inadequate in addressing the risks linked to financial crimes, especially given the rapid growth of its customer base.
FCA’s Findings on Starling’s Financial Crime Controls
The FCA’s recent assessment found that Starling Bank’s financial crime controls were severely lacking. Specifically, the controls did not evolve in tandem with the bank’s rapidly expanding customer base, which surged from 43,000 in 2017 to a staggering 3.6 million by 2023. This significant increase in customers exposed critical vulnerabilities in Starling’s financial crime control framework.
Opening of High-Risk Accounts
Between September 2021 and November 2022, Starling Bank opened more than 54,000 accounts for nearly 49,000 high-risk customers, contravening FCA regulations. The bank had previously agreed to curb the opening of new accounts for high-risk customers following FCA’s review into financial crime controls among challenger banks in 2021.
Internal Review and Discovery of Systemic Issues
Starling conducted an internal review which identified systemic issues, including multiple potential breaches of financial sanctions. These breaches were subsequently reported to the relevant authorities, reflecting a significant compliance gap.
The review highlighted that, since 2017, Starling’s automated system had screened customers against only a fraction of the complete list of individuals subject to financial sanctions. This oversight rendered the bank’s control measures ineffective in preventing financial crimes.
Starling’s Response to the FCA Findings
David Sproul, Chairman of Starling Bank, apologised for the identified failings, expressing a commitment to rectify these issues. He emphasised that the bank has invested considerable resources to enhance its financial crime controls and strengthen its board governance and capabilities.
Sproul assured customers and employees that these issues are historical, and the bank has learned important lessons from the FCA investigation. He conveyed confidence in the bank’s future growth strategy, supported by a robust risk management framework.
FCA’s Criticism and Starling’s Subsequent Actions
Therese Chambers, FCA’s Joint Executive Director of Enforcement and Market Oversight, criticised Starling’s inadequate financial sanction screening controls, describing them as ‘shockingly lax.’ She highlighted the severe risk posed to the financial system due to these deficiencies.
In response, Starling has undertaken steps to enhance its financial crime control framework. These improvements aim to address the identified gaps and ensure stronger compliance with regulatory requirements.
Impact on Starling Bank’s Operations
The imposition of this substantial fine and the revelations concerning the bank’s compliance shortfalls have undoubtedly impacted Starling’s reputation. However, the bank’s proactive measures to address these issues may mitigate long-term damage.
Strengthening financial crime controls and board governance reflects Starling’s commitment to maintaining trust and ensuring regulatory compliance as it continues to grow.
The FCA’s hefty fine against Starling Bank underscores the critical importance of robust financial crime controls, especially for rapidly growing financial institutions. Starling’s experience serves as a stark reminder of the consequences of regulatory non-compliance.
Moving forward, it is imperative for the bank to uphold stringent compliance measures to restore confidence among its stakeholders and safeguard the integrity of the financial system.