The Financial Conduct Authority (“FCA”) has fined Starling Bank for failing to follow anti money laundering (“AML”) checks when opening accounts for high risk customers.
In total the FCA fined Starling Bank (“Starling”) £28,959,426, which now has 3.6m customers, having grown rapidly from 2017 when it only 43,000 people using the online only banking service.
The FCA identified 'serious concerns' around the bank's AML sanctions framework, saying: 'Starling's senior management as a whole lacked the experience and capability to effectively implement the Voluntary Requirement (VREQ), specifically they lacked the required AML skills or experience.
'This resulted in an inadequate design of the financial crime VREQ risk management framework.'
Additionally, the FCA claimed the bank 'did not fully recognise its regulatory obligations'.
The FCA notified the bank of this in 2021 and Starling agreed to not open accounts for high risk customers until the framework was improved. However, Starling did not comply, opening 54,000 more accounts for 49,000 high risk customers over two years.
Therese Chambers, joint executive director of enforcement 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.'
It was not until July 2022 that Starling realised its screening process had not been analysing the full list of applicants subject to financial sanctions, allowing accounts to be opened by people with sanctions against their names. Although, this had been the case since 2017.
The FCA final notice said: 'On 21 July 2022, Starling identified that a key financial crime risk control was not functioning correctly, resulting in new accounts being opened and services being provided for customers who had been previously exited for financial crime reasons.
'As these former customers fell within the VREQ's definition of high risk or higher risk persons, the opening of these new accounts breached the terms of the VREQ.'
It took Starling just one day to resolve the issue, however the FCA was not notified of the breach until 24 August 2022. The FCA responded two days later saying the bank was in breach of the rules put in place in 2021.
The FCA found that 294 new customers that had been removed by Starling previously for financial sanctions but had been allowed to create new accounts. Of these, 161 had been subject to Suspicious Activity Reports (SAR) and 112 had either a full or partial match on CIFAS, the UK's fraud prevention service.
Starling Bank has since reported several potential breaches to the authorities.
The FCA also asked the board of Starlin to complete a 'lessons learned' review of why and how the problem occurred in the first place, as well as having to have an action plan in place to respond to the findings.
This case was concluded within 14 months, 28 months faster than the average speed these cases normally take to resolve.
Final Notice 2024: Starling Bank Limited