FCA ups the ante – startling fine for Starling Bank

On 2 October 2024, the Financial Conduct Authority (FCA) announced a significant fine. In this article, we explain the circumstances leading to the fine and our four key takeaways.

What happened?

The FCA fined Starling Bank Limited £28,959,426 for financial crime compliance failings.

The story begins in 2021 when the FCA reviewed compliance policies and procedures at challenger banks – relatively new retail banks, like Starling, that compete with established banking institutions.  The FCA identified concerns with Starling’s anti-money laundering and sanctions measures. In response, Starling agreed to (a) improve compliance and (b) restrictions in relation to the opening of new accounts for ‘high-risk’ customers until the improved compliance measures had been implemented.

In fact, in the period September 2021 – November 2023, Starling opened over 54,000 accounts for 49,000 ‘high-risk’ customers. The key issue related to the screening of customers against financial sanctions. An internal investigation at Starling identified that its automated screening system only screened customers against a partial list of sanctioned individuals and entities.

FCA reaction

The FCA has taken a robust line. Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA 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”.

The fine imposed by the FCA is the largest it has issued this year.

Key takeaways

1. Ensure that financial crime compliance measures are updated in the event of changes to the size profile of the business, or in relation to the nature of services provided.
   • Starling grew from approximately 43,000 customers in 2017 to 3.6 million in 2023. Its compliance measures, including in relation to financial crime, did not keep pace with the growth.
   • We often see breaches where businesses grow exponentially. The investment in compliance must be proportionate to growth if risks are to be properly managed.
2. If you make a commitment to a regulator to implement compliance improvements, you must follow through. Failure to do so will result in significant fines, adverse publicity and damage to reputation.
3. The FCA will not shy away from enforcing significant fines. The case took 14 months to conclude marking a much faster approach than in the previous year (average of 42 months from opening to conclusion for 2023 / 24 cases). As noted above, the fine imposed by the FCA is the largest it has issued this year.
4. Sanctions continues to be a key regulatory risk. In addition to the FCA / Starling decision, we’ve seen (a) a recent fine imposed by the UK’s Office of Financial Sanctions Implementation (OFSI) and (b) an announcement that powers of the new Office of Trade Sanctions Implementation (OTSI) to enforce compliance of certain trade sanctions on a civil basis will come into force on 10 October 2024.

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