Managing Financial Crime Risks: Lessons from Starling’s £29m Fine

On October 2nd 2024, Starling Bank was fined £29 million for serious failings in onboarding high-risk customers and sanctions screening over a four-year period (2019 to 2023). The Financial Conduct Authority (FCA) investigation exposed significant weaknesses in Starling’s control frameworks, highlighting the crucial importance of managing financial crime risks effectively. 

With nearly 50,000 high-risk accounts opened during this period, the fine serves as a stark reminder that inadequate systems and oversight can lead to costly consequences. For organisations looking to strengthen their financial crime risk management and ensure compliance, AJC provides expert guidance to help implement robust and reliable controls.

What Went Wrong

Rapid growth combined with insufficient control frameworks were key factors in these failings. Concerns raised by the FCA in 2021 over Starling’s sanctions screening processes prompted the bank to strengthen its controls and agree to additional VREQs, specifically restricting the opening of high-risk customer accounts. However, these measures were poorly implemented and inadequately monitored, resulting in nearly 50,000 high-risk accounts being opened. This highlights weaknesses in governance, management, and second-line oversight, alongside failures in understanding and execution of regulatory obligations.

Sanctions Screening Gaps

One of the most significant issues was that Starling’s sanctions screening only covered certain regulatory lists, leaving gaps in the screening process. This points to a lack of comprehension around regulatory requirements and shortcomings in system development, management accountability, and oversight. Additional issues included flawed risk assessments, inadequate policies, poor testing, and insufficient management information (MI). The FCA also flagged failures in designing and maintaining systems to mitigate financial crime, a core principle for business operations. Comparisons have been drawn to HSBC’s £70 million fine in 2021 for similar failings in its systems and controls. 

What Comes Next

Starling Bank will need to conduct a thorough review of its risk assessment processes, particularly regarding financial crime. However, the flawed approach used in this area may extend to other risks, such as Conduct or Operational Risk. Addressing these issues could uncover further weaknesses and areas of potential non-compliance.

To rectify the situation, Starling may need to reassess all high-risk accounts, which could lead to requests for additional customer information, delayed transactions, or offboarding. This process may require reallocating resources from other teams or projects, potentially slowing progress on new initiatives, or even seeking external support to manage the increased focus on customer screening and cleaning up the existing client base.

Conduct and Operational Risks

From a Conduct Risk perspective, Starling may face delays in service response times, potential complaints mishandling, or delays in delivering customer improvements such as base rate changes on linked products. These service slowdowns could negatively impact customer outcomes, leading to further reputational risks and operational issues.

There may also be a short-term decline in the bank’s Net Promoter Score (NPS), an increase in complaints, and a potential surge in Financial Ombudsman Service (FOS) referrals. Until Starling resolves the issue and stabilises its resources, growth could slow and reputational damage may persist. Additionally, the competence and supervision of staff in authorised roles could be called into question, possibly leading to changes in key personnel.

Long-Term Improvements

On a positive note, Starling stands to benefit from the lessons learned. Improved regulatory understanding, better MI, and more effective systems and controls could drive improved customer outcomes over the medium to long term. The focus on strengthening data-driven decisions, ongoing monitoring, and management oversight should lead to enhanced policies and procedures that safeguard the bank’s future operations.

How AJC Can Help

For organisations concerned about their own systems and controls for managing financial crime risks, AJC is here to assist. Our team of experts specialises in building and strengthening frameworks to ensure compliance with regulatory requirements. Whether it’s risk assessments, sanctions screening, or operationalising processes to mitigate financial crime, we can help you establish robust systems to protect your business. Get in touch with AJC today for tailored support and guidance in navigating these complex challenges.

Please contact us at 020 7101 4861 if you think we can help.

For more information and a detailed analysis, visit the FCA’s article.
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