Every financial organisation has a responsibility to ensure criminals are not abusing its services. The booming popularity of neobanks following the pandemic saw people, both good and bad, flock to them, however, one notable name has failed to tackle financial crime and as a result is now facing a hefty fine from the Financial Conduct Authority (FCA).
In early October, the FCA, the UK regulator, announced that it had fined UK challenger bank, Starling Bank, £28,959,426 for financial crime failings related to its financial sanctions screening. In 2021, the FCA investigated Starling and identified serious concerns with its anti-money laundering and sanctions framework. At the time, the bank agreed to a requirement of restricting new accounts for high-risk customers from opening until its screening improved.
Starling’s growth has been meteoric from 43,000 customers in 2017 to 3.6 million in 2023. However, during this time, many criminal accounts have been opened. Between September 2021 and November 2023, Starling opened over 54,000 accounts for 49,000 high-risk customers, despite agreeing to demands of the FCA.
In January 2023, Starling became aware that its automated screening system had, since 2017, only been screening customers against a fraction of the full list of those subject to financial sanctions. A subsequent internal review identified systemic issues in its financial sanctions framework. Starling has since reported multiple potential breaches of financial sanctions to the relevant authorities.
Therese Chambers, joint executive director of Enforcement and Market Oversight commented: “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.”
Interestingly, Starling would have been fined £40,959,426, but it agreed to resolve these matters and so qualified for a 30 per cent discount under the FCA’s processes.
Impact on the industry
Andrew Doyle, CEO of NorthRow
Starling Bank is a big name in the fintech space. As a result, its fine could have a ripple effect on other organisations as they may see this as a wake-up call to review their own processes. Commenting, Andrew Doyle, CEO at NorthRow, the AML compliance management software provider, said: “The £28.9million fine imposed on Starling Bank is a significant financial penalty, but it’s clear that the issue goes beyond the monetary punishment.
“The fine, combined with the increased regulatory pressure, should serve as a strong motivator for Starling to prioritise improvements in its sanctions screening process. With their reputation on the line, we would hope that the bank is unlikely to make the same mistakes.
“However, the real test will be in the long-term sustainability of these changes – will Starling maintain the rigorous standards needed as they continue to grow? A fine alone won’t ensure compliance; the bank must demonstrate an internal commitment to strengthening compliance, oversight, and improving AML systems. This will ultimately determine whether their screening process is truly improved.
“That said, this fine should certainly encourage other fintechs and challenger banks to proactively reevaluate their compliance strategies, ensuring they don’t fall into the same trap of allowing growth to outpace their regulatory compliance procedures.”
More than just a tickbox exercise
Inna Lyubashevskaya, chief customer officer at Sumsub
Further exploring how this fine could impact other neobanks in the sector, Inna Lyubashevskaya, chief customer officer at ID verification platform Sumsub, said: “Starling’s fine highlights a recurring issue in financial services: the cost of cutting corners on verification. Not conducting proper verification checks is like instinctively locking your front door but still leaving windows wide open for criminals to sneak in.
“Whether it’s overlooking crucial verification measures like proof of address (PoA) or not implementing effective transaction monitoring, such gaps allow illicit actors to bypass systems, exposing businesses and customers alike.
“Effective compliance isn’t just about ticking boxes. Instead, financial institutions need to create an ongoing fraud protection system that covers all bases. Consequences like this fine should be a wake-up call for all banks and fintechs, reiterating that cutting corners on financial crime prevention not only opens doors to fraud, but also harms reputation and weakens trust.
“Robust anti-fraud measures are crucial not only for safeguarding the bank’s operations but also for protecting customers from financial losses and identity theft.”
Is this enough of a punishment?
Having been instructed to restrict account openings for high-risk accounts, yet still opening them could be viewed as negligence and consequently, impact consumer trust. Doyle added: “For any bank, particularly a digital-first challenger like Starling, trust is everything. This week’s announcement is bound to shake consumer confidence, at least temporarily. Customers who choose digital banks do so because they trust these platforms to handle their money securely and efficiently.
“The announcement of Starling’s regulatory failings in key areas like financial crime controls making national news will undoubtedly create doubts.
“However, the long-term impact on customer trust will depend largely on how Starling handles the fallout. If they communicate transparently about the steps they are taking to fix these issues, invest in visible improvements, and demonstrate their commitment to protecting customers from financial crime, they could regain the loss of public trust.”
FCA acting swiftly
Adam Katz, founder and CEO at Kooltra
In total, the FCA’s case into Starling took 14 months, which is much faster than compared to its average of 42 months for cases closed in 2023/24. This is a testament to the regulator’s improvement in enforcement investigations. Discussing the improved speeds, Adam Katz, founder and CEO at Kooltra, the end-to-end foreign exchange and global payments infrastructure, said: “The fine Starling Bank received represents roughly 10 per cent of one year of profits.
“The question we need to ask ourselves is whether or not this is enough deterrence to effectively disincentivise looking the other way on money laundering and terrorism financing and seeing fines as a cost of doing business. The answer to that lies in the probability of being caught and the effectiveness of the regulator.
“In this case, the FCA acted swiftly, and this is a trend we’re seeing with regulators globally. As regulators improve their technology and processes, guidance is made clearer, and rules are more effectively enforced, this fine would be adequate.
“That being said, repeat offences should be fined at a higher ratio to profits, culminating in criminal charges for ongoing non-compliance if we really want to weed out illicit activity. It’s unlikely for consumers to drive the change, because poorer compliance processes are often correlated with a better customer experience (quicker onboarding, less questions, etc). In this case, the regulatory intervention is necessary to get everyone playing by the same rules, but that only works with effective enforcement.”
Benefits for the industry
Commending the FCA for its increased speeds, Alasdair Anderson, VP of Protegrity, the data-centric security and privacy firm, added: “The FCA’s accelerated investigation into Starling Bank signals a significant shift in how quickly regulators are willing to act when compliance failures arise, particularly in fast-moving sectors like fintech. Historically, compliance investigations have taken longer, allowing issues to persist.
“However, the quicker response in this case sets a positive precedent and benefits the entire industry. It demonstrates that the FCA is more agile in identifying risks and acting, which in turn creates a more accountable environment for fintech companies to operate within.
“For the fintech sector, faster investigations encourage a more proactive approach to compliance. Fintechs, especially challenger banks, know they can no longer rely on regulatory lag to address issues after the fact. Instead, they must prioritise real-time monitoring, advanced data sharing and cutting-edge technologies like AI-driven compliance tools to detect and mitigate risks before they escalate.
“This shift in regulatory enforcement also increases investor and consumer confidence, as it ensures a more stable and secure environment for growing fintech companies.”
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