By Aaron Nicodemus, 21 October 2024
Britain’s first digital bank grew exponentially fast in five years, with 43,000 customers ballooning to more than 3.6 million by 2023. Starling Bank’s financial crime programme, however, did not keep pace with its growth, according to the UK’s Financial Conduct Authority (FCA).
In 2021, the regulator found serious deficiencies in the bank’s financial crime prevention system and ordered it to stop onboarding high-risk customers until improvements were made.
Multiple breaches
But Starling failed to comply with that order, opening 54,000 accounts for 49,000 customers at high risk of having financial sanctions from 2021–23. Over the same period, Starling reported multiple breaches of financial sanctions to the relevant authorities.
As a result of repeatedly failing to comply with its 2021 order, the FCA announced this month that it had fined Starling £29 million (US $38.5 million) [1].
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, commented: '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 regulator noted that the investigation into the issues at Starling took 14 months to complete – significantly faster than the agency’s 42-month average the last two years.
In a statement [2], the bank said it accepted the FCA’s finding that its financial crime controls ‘failed to keep pace with the growth of the business,’ and has since made ‘extensive investment into the bank’s financial crime resource and expertise.’
‘Starling regrets and apologises for the events and shortcomings that led to the FCA’s final notice,’ the statement read.
Root cause
The root of the problem with Starling’s financial crime programme was its automated screening system, which since 2017 had been screening only a fraction of the full list of those individuals subject to financial sanctions, the FCA said.
The FCA acknowledged in its final notice [3], that Starling improved its sanctions screening and control programme, conducted a remediation exercise in respect to the customer accounts opened in contravention of the FCA’s order, as well as carried out historic financial sanctions screening reviews of its entire customer base and payments dating back to 2017.
The bank fully cooperated with the investigation and qualified for a 30% reduction in the initial fine, which would have been £41 million (US $54.4 million), the FCA noted.
This article has been republished with permission from Compliance Week, a US-based information service on corporate governance, risk, and compliance. Compliance Week is a sister company to the International Compliance Association. Both organisations are under the umbrella of Wilmington plc. To read more visit www.complianceweek.com
[1] https://www.fca.org.uk/news/press-releases/fca-fines-starling-bank-failings-financial-crime-systems-and-controls
[2] https://www.starlingbank.com/news/starling-bank-response-to-fca-final-notice/
[3] https://www.fca.org.uk/publication/final-notices/starling-bank-limited-2024.pdf