Starling Bank, a popular challenger bank based in the U.K., has received a £29 million fine from the country’s financial regulator (around $39 million at current exchange rates). The Financial Conduct Authority (FCA) found the startup didn’t have proper financial crime controls from 2021 to 2023.
Starling has been around for more than a decade. But the FCA started paying attention to challenger banks with a wide-ranging review of financial crime controls in 2021.
The timing of the review occurred a few months after German fintech Wirecard – another company that had obtained a banking license – imploded. Following allegations of accounting malpractices, Wirecard filed for insolvency and announced that €1.9 billion was missing.
The FCA most likely doesn’t want to find itself in the same position as BaFin, the German financial regulator. That’s why we’ve seen an increased level of scrutiny on fintech startups in the U.K. and Europe over the past few years.
Coming back to Starling’s situation, the FCA has identified shortcomings in its anti-money laundering processes.
The regulator previously asked Starling to stop accepting so-called high-risk customers until it fixed its anti-money laundering processes. However, around 49,000 high-risk customers managed to open Starling accounts between September 2021 and November 2023.
Overall, 54,000 accounts were opened by high-risk customers, per the FCA.
It reports that Starling grew from 43,000 customers to 3.6 million in 2023. On its website, the company now says that it has 4.2 million customers.
“Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions,” Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, said in a press release announcing the sanction. “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 is cooperating as the FCA says the fine has been lowered by 30%. The company agreed to fix its processes so that it could pay a lower fine and move on.
“I would like to apologize 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,” Starling chairman David Sproul said in a statement.
“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,” he added.
Now, you might be wondering what’s going on at other challenger banks. Monzo, for instance, has also faced regulatory investigation in recent years. But after two years of digging the FCA dropped its criminal probe.
As for Revolut, the FCA flagged some suspicious accounts in 2023, according to the Financial Times. At the time, the startup was an e-money institution, not a bank. But the regulator went on to grant it a U.K. banking license, in July 2024, after a long application process.
