Starling Bank, backed by Goldman, fined $38.5 million for financial crime prevention lapses.

• The Financial Conduct Authority in London imposed a fine on Starling for "failures in financial crime screening."
• The FCA noted that Starling repeatedly opened accounts for high-risk customers despite being required not to do so.
• Starling, a well-known online-only bank in the U.K., has been seen as a possible IPO contender in the near future.

British digital lender Starling Bank was fined £29 million ($38.5 million) by U.K. financial regulators for issues with its financial crime prevention systems.

The Financial Conduct Authority (FCA) announced on Wednesday that it had fined Starling Bank for failing to comply with financial sanctions screening and repeatedly opening accounts for high-risk customers.

Starling apologized for the FCA penalty and conducted a thorough review of customer accounts.

David Sproul, chairman of Starling Bank, apologized for the failings outlined by the FCA and assured that they have invested heavily to rectify the issues, including improving their board governance and capabilities, in a statement on Wednesday.

"We want to reassure our customers and staff that these are significant problems. We have learned from this investigation and are confident that these changes and the strength of our franchise will enable us to maintain our strategy of safe, sustainable growth, backed by a robust risk management and control system," he stated.

Starling, a well-known online-only challenger bank in the U.K., has been viewed as a possible IPO candidate in the near future. Although the startup initially indicated plans to go public, it has since delayed its expected timing, with an IPO now potentially occurring as early as 2023.

The FCA stated that despite Starling's growth from 43,000 customers in 2017 to 3.6 million in 2023, the bank's measures to combat financial crimes did not keep up with the expansion.

In 2021, the Financial Conduct Authority (FCA) started investigating financial crime controls at digital challenger banks due to concerns that the anti-money laundering and know-your-customer compliance systems of fintech brands were not robust enough to prevent fraud, money laundering, and sanctions evasion on their platforms.

Despite agreeing to halt new bank accounts for high-risk customers until it improved internal controls, Starling opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023, according to the FCA.

In 2023, Starling discovered that its automated system was only screening clients against a limited portion of the full list of individuals and entities subject to financial sanctions, according to the FCA. The bank identified systemic issues in its sanctions framework during an internal review.

The British regulator has reported that Starling has identified potential breaches of financial sanctions.

Starling has already implemented programs to rectify the breaches it discovered and to improve its overall financial crime control system, as stated by the FCA.

The British regulator stated that its investigation into Starling took 14 months from its opening, which is significantly shorter than the average 42 months for cases closed in the calendar year 2023/24.