The UK Financial Conduct Authority (FCA) has hit Starling Bank with a fine of almost £29 million over "financial crime failings" related to the mechanisms used to prevent high-risk or sanctioned customer from opening accounts.
In a final notice, the FCA also alleged that there had been communication issues between senior management and the staff responsible for the day-to-day implementation" of a previous agreement requiring it to avoid opening accounts of "high or higher risk" customers until its anti-money laundering (AML) mechanisms had been improved.
The FCA first found "serious concerns" with Starling’s AML and financial sanctions frameworks during a review of financial crime controls at challenger banks in 2021.
Starling then launched an "AML enhancement plan" and accepted a voluntary requirement (VREQ) agreeing not to open new accounts for risky customers until it had improved its anti-money laundering control framework.
However, the FCA claimed that senior management had neglected to inform key staff for responsible for implementing the VREQ.
"In particular, the engineering teams – who were responsible for making the key changes to Starling’s systems and controls to implement the VREQ – were not informed of the existence of the VREQ or the seriousness and potential consequences of not implementing the VREQ appropriately," it wrote.
Starling’s third line of defence (3LOD) was allegedly "unaware of the VREQ until late 2022".
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Therese Chambers, the FCA's Joint Executive Director of Enforcement and Market Oversight, said: "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."
In a statement, Starling Bank said it "fully accepts" the FCA's findings and apologised for "the events and shortcomings" that led to its Final Notice.
It has now completed a "detailed re-screening of transactions" and an "in-depth back book review of customer accounts" to address the FCA's allegations.
David Sproul, Chairman of Starling Bank, said: “I would like to apologise for the failings outlined by the FCA and to provide reassurance that we have invested heavily to put things right, including strengthening our board governance and capabilities. We want to assure our customers and employees that these are historic issues.
"We have learned the lessons of this investigation and are confident that these changes and the strength of our franchise put us in a strong position to continue executing our strategy of safe, sustainable growth, supported by a robust risk management and control framework.”
Starling has also increased its "capability, structure and resources across all lines of defence" and installed "enhanced controls" to ensure monitoring and oversight of its compliance with the VREQ and financial sanctions screening systems and controls.
Abdulali Jiwaji, partner and expert banking litigator at Signature Litigation, told The Stack: "While the FCA wants to support challenger banks and promote the UK financial services industry, this cannot come at the expense of damage to the reputation of the UK markets – we cannot be seen as a lax jurisdiction.
Jiwali added: "The FCA recognises that it is open to challenger banks to take advantage of new technologies, but focus needs to remain on basic aspects such as checking customer income and occupation and identifying politically exposed persons. While there may be pressure to grow the business, that cannot be at the expense of for example identifying the ultimate beneficial ownership in high risk corporate structures."
