Goldman-backed Starling Bank hit with $38.5 million fine for financial crime prevention failures

Starling Bank, one of the U.K.’s most well-known challenger banks, has been fined $38.5 million (approx. £29 million) by the Financial Conduct Authority (FCA) for significant failures in financial crime prevention systems. Despite rapid growth in its customer base, Starling’s anti-money laundering (AML) and sanctions screening processes did not scale adequately, leading to serious compliance issues.

Reasons for the Fine

The fine stems from multiple failures in Starling’s financial crime prevention controls, which became evident as the bank’s customer base expanded from 43,000 in 2017 to 3.6 million by 2023. The FCA highlighted the following key areas of concern:

• Anti-Money Laundering (AML) Controls: Starling was unable to maintain effective AML controls to match the pace of its customer growth. In particular, the FCA pointed out that the bank had agreed to stop opening new accounts for high-risk customers but failed to adhere to this agreement.
• Sanctions Screening: Since 2017, Starling’s automated systems had not been fully screening customers against a comprehensive sanctions list, leading to potential breaches of financial sanctions laws. This issue was discovered in early 2023.

Key Failures Identified

• Inadequate Internal Controls: Starling opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023, even after agreeing with the FCA to stop doing so until their controls were improved.
• Incomplete Sanctions Screening: Starling discovered that their systems were not properly screening against a full list of individuals and entities subject to sanctions, which contributed to multiple potential breaches.

Regulatory Investigation and Response

The FCA launched its investigation into Starling in 2021 as part of a broader examination of digital banks’ compliance with financial crime prevention measures. The investigation concluded within 14 months, significantly faster than the 42-month average for such cases. Since then, Starling has taken steps to address the deficiencies identified by the FCA.

In response, Starling assured its customers and stakeholders that these issues are now in the past and emphasized that they have strengthened their risk management and control frameworks. The bank stated that it has learned from the investigation and implemented programs to improve its financial crime prevention systems.

Impact on Starling Bank

The fine and regulatory scrutiny come at a time when Starling is considered a potential IPO candidate. Previously targeting a public listing as early as 2023, the ongoing compliance challenges could influence the bank’s timing for going public​(Tech Startups)​(Patabook).

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