Starling Bank, a leading challenger bank in the UK, has been hit with a hefty £29 million fine by the Financial Conduct Authority (FCA) for failing to implement proper financial crime controls from 2021 to 2023. This amounts to around $39 million at current exchange rates.
The FCA's scrutiny of challenger banks, including Starling, intensified following the collapse of German fintech company Wirecard in a massive accounting scandal. The regulator aims to prevent a similar situation to what happened with BaFin, the German financial regulator.
Specifically, the FCA found that Starling had shortcomings in its anti-money laundering processes, allowing high-risk customers to open accounts despite previous warnings. This led to 54,000 accounts being opened by high-risk customers, despite Starling's rapid growth to 3.6 million customers in 2023.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, criticized Starling's lax financial sanction screening controls, stating that it left the financial system vulnerable to criminals and sanctions violations.
Despite the hefty fine, Starling is cooperating with the FCA to address the issues and has seen the fine reduced by 30%. The company's chairman, David Sproul, apologized for the failings and emphasized the company's commitment to strengthening its governance and risk management processes.
While Starling is dealing with regulatory challenges, other challenger banks like Monzo and Revolut have also faced scrutiny from regulators. Monzo recently had a criminal probe dropped after two years of investigation, while Revolut faced issues with suspicious accounts but eventually obtained a UK banking license in 2024.
Overall, the FCA's actions highlight the importance of robust financial crime controls for fintech startups and the potential implications of regulatory scrutiny on the growth and operations of these companies.