The City watchdog has fined challenger Starling Bank almost £29 million for its "shockingly lax" systems to screen out potential money launderers and individuals under financial sanctions.
Acknowledging that the digital bank grew rapidly from around 43,000 customers in 2017 to 3.6 million in 2023, the Financial Conduct Authority (FCA) said "measures to tackle financial crime did not keep pace with its growth".
Controls to screen for financial sanctions were "shockingly lax", said Therese Chambers, an FCA enforcement director, who said Starling "left the financial system wide open to criminals and those subject to sanctions".
Starling Bank’s leadership under founder Anne Boden, who left the business in May 2023, came in for harsh criticism.
The FCA said the senior management team "lacked the experience and capability" to introduce controls, as well as the required anti-money laundering skills or experience.
A review by the regulator of financial crime controls at challenger banks in 2021 identified serious concerns with the anti-money laundering and sanctions framework in place at Starling, leading to a block being imposed on new account openings for high-risk customers until this improved.
Starling failed to comply, the FCA said, opening over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
This included almost 10 months after managers became aware earlier that year that an automated screening system had failed to filter out most customers subject to financial sanctions, though Starling has since reported multiple potential breaches of financial sanctions.
The bank only celebrated its first month without admitting a high-risk customer in April 2024.
Starling Bank said it fully accepts the findings, adding that it regrets and apologises for its shortcomings, noting that it had "proactively communicated" to the FCA.
It has paid the fine as a full and final settlement, saying it has since completed a "detailed re-screening of transactions and an in-depth back book review of customer accounts", with additional safeguards put in place to ensure it complies with regulatory requirements, with a "significant" increase in "all lines of defence".
Chairman David Sproul said: "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."
Starling is not the only one, the regulator said, calling for the "challenger bank sub-sector as a whole...to do more in relation to their financial crime controls".