Starling Bank Hit With $38.5 Million Fine for ‘Shockingly Lax’ Financial Crime Controls

British digital lender Starling Bank has been fined £29 million ($38.5 million) by the UK’s Financial Conduct Authority (FCA) for significant shortcomings in its financial crime control systems. The FCA criticized Starling’s “shockingly lax” controls, stating that the bank failed to adequately screen customers against financial sanctions lists and repeatedly opened accounts for high-risk individuals despite agreeing to halt such practices.

As Starling experienced rapid growth in customer numbers, its anti-money laundering and financial crime prevention measures failed to keep pace, leaving the bank vulnerable to potential misuse by criminals and individuals subject to sanctions.

The FCA’s investigation revealed that, from 2017 to early 2023, Starling’s automated systems were only screening customers against a fraction of the complete list of sanctioned entities. An internal review conducted by the bank in January 2023 uncovered systemic issues in its sanctions framework, prompting Starling to report multiple potential breaches to the relevant authorities.

The FCA also found that Starling had breached an agreement to stop onboarding high-risk customers until it improved its internal controls. Between September 2021 and November 2023, the bank opened over 54,000 accounts for nearly 50,000 high-risk individuals, despite this commitment.

Starling has expressed regret for the failings and assured customers that it has taken steps to rectify the issues, including strengthening board governance and enhancing its risk management framework. The bank has also implemented remediation programs to address the identified breaches and improve its overall approach to financial crime prevention.

Key Takeaways:

• Starling Bank has been fined £29 million for serious failings in its financial crime controls.
• The FCA criticized the bank’s inadequate sanctions screening and breaches of rules regarding high-risk customers.
• Starling’s rapid growth exposed weaknesses in its financial crime prevention measures.
• The bank has taken steps to address the identified issues and enhance its compliance framework.

This significant fine highlights the importance of robust financial crime controls for all financial institutions, especially those experiencing rapid growth. The FCA’s action serves as a warning to other banks that inadequate compliance measures will result in severe penalties.