FCA Investigation Reveals Serious Compliance Failures at Starling Bank

The Financial Conduct Authority (FCA) has uncovered significant deficiencies in Starling Bank’s systems designed to mitigate financial crime risks, particularly as the digital bank expanded rapidly from its first account in 2016 to 3.6 million customers by 2023.

Concerns regarding Starling’s anti-money laundering (AML) and financial sanctions controls were first raised by the FCA in 2021 during a review of rapidly growing challenger banks. In response, Starling committed to halting the opening of new accounts for high-risk customers until it improved its systems. However, the bank violated this agreement by opening over 54,000 accounts for nearly 50,000 high-risk customers, directly contravening FCA regulations.

Additionally, Starling’s automated screening system, operational between 2017 and 2023, failed to properly screen a significant number of customers subject to financial sanctions. This oversight created a “material risk” that individuals under sanctions may have opened or maintained accounts with the bank.

The findings raise troubling questions about Starling’s leadership, particularly under its founder, Anne Boden, who resigned as CEO in June 2023 and departed from the board in 2024. In light of these compliance issues, Starling had enlisted a consultancy firm to investigate its practices. The firm reported in September 2023 that the bank’s senior management lacked the requisite experience to enforce compliance with FCA standards effectively.

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, condemned Starling’s shortcomings, stating, “Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions.”

In the wake of these revelations, Starling has issued an apology for its failures. Chairman David Sproul noted that the bank has “invested heavily to put things right, including strengthening our board governance and capabilities.” Nevertheless, the ongoing scrutiny and potential fines raise concerns about Starling’s aspirations for a London stock market listing.

The scandal has prompted rival banks to consider legal action against Starling for costs related to fraudulent payments made to its customers. Reports from June indicated that the FCA had initiated a separate investigation into Starling’s compliance with the UK’s anti-money laundering rules.

While Starling has expressed regret for its past failures, the FCA’s investigation poses a significant threat to the reputation of the once-lauded digital bank, casting doubt on its future leadership and regulatory compliance.