Starling Bank has significantly stepped up its legal actions against companies defaulting on Covid-19 loans. This move comes amidst increasing scrutiny of the bank’s compliance with money-laundering regulations by the Financial Conduct Authority (FCA).
Winding Up Petitions Filed
Recently, the bank has filed winding up petitions against 24 companies. Many of these companies show limited or no signs of trading activity. The Financial Times initially reported these actions.
These petitions target businesses that received loans through the government’s bounce back loan scheme. The scheme was designed to support small businesses during the Covid-19 pandemic by offering loans of up to £50,000 with 100% government guarantees.
Challenges and Criticism
The bounce back loan scheme provided vital financial support to SMEs during lockdowns. However, Starling Bank has faced criticism for its handling of the scheme.
Former anti-fraud minister Lord Agnew accused Starling of failing to prevent fraud effectively. However, Anne Boden, who founded the bank in 2014, vehemently denied these claims.
Financial Impact
As of March 2023, Starling’s lending to SMEs stood at nearly £832 million.
Approximately £742 million of this total is backed by government guarantees. The bank has reported a 43.3% increase in impairment charges for potential bad loans, amounting to £12.2 million.
This increase is attributed to growth in mortgage lending and higher default rates in unsecured SME lending.
Bank’s Response
A spokesperson for Starling described winding up petitions as standard procedures for recovering defaulted loans. She emphasised the bank’s proactive stance on loan recovery and fraud reporting.
Starling has been cooperating fully with the FCA in its investigation. The FCA is looking into the bank’s anti-money laundering and financial crime controls since November.
Leadership Changes
The bank is currently undergoing significant leadership changes. John Mountain is serving as the interim chief operating officer following Anne Boden’s departure.
Raman Bhatia, formerly of Ovo, is set to become the new chief executive next week.
Growth Amid Scrutiny
Starling Bank has grown rapidly since its founding, boasting around 4.2 million customer accounts and a £301.1 million pre-tax profit for the year ending March 2023.
Its significant growth can be partly attributed to the issuance of bounce back loans during the pandemic. This has led to increased scrutiny over the potential abuse of these schemes by fraudsters due to limited initial checks.
Future Prospects
The potential outcomes of the FCA’s investigation remain uncertain. However, they could be significant for the bank.
Starling continues to navigate these challenges while maintaining its customer base and financial performance.
Conclusion
As Starling Bank intensifies its legal actions against Covid loan defaulters, it remains under the spotlight for compliance issues. The bank’s future will heavily depend on the outcomes of these legal and regulatory challenges.
Starling Bank’s aggressive stance on loan recovery demonstrates its commitment to addressing defaults. However, ongoing investigations by the FCA could impact its future operations. The bank’s ability to manage these challenges whilst continuing to grow will be critical in the coming months.
