Starling Bank, a prominent U.K.-based challenger bank, has been fined £29 million (approximately $39 million) by the Financial Conduct Authority (FCA) for inadequate financial crime controls between 2021 and 2023. The FCA found that Starling failed to implement effective anti-money laundering (AML) measures during this period.

This comes after the FCA’s broader investigation into the financial crime controls of U.K. challenger banks, which began in 2021. The scrutiny followed the collapse of German fintech company Wirecard, which faced accounting fraud allegations and ultimately filed for insolvency with €1.9 billion missing. The FCA’s increased attention is likely a response to avoiding a similar oversight as Germany’s financial regulator, BaFin, faced during the Wirecard scandal.

Regarding Starling, the FCA highlighted significant weaknesses in the bank’s AML processes. Despite earlier instructions from the regulator to halt the onboarding of high-risk customers, Starling allowed around 49,000 high-risk accounts to be opened between September 2021 and November 2023. In total, 54,000 high-risk accounts were opened during this period.

The rapid growth of Starling was noted by the FCA, with its customer base expanding from 43,000 to 3.6 million by 2023. The bank now claims to serve 4.2 million customers.

“Starling’s financial sanction screening controls were shockingly lax, leaving the financial system vulnerable to criminals and sanctioned individuals,” said Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, in a press release. Chambers also pointed out that Starling had failed to comply with the FCA’s previously agreed measures designed to reduce the risk of facilitating financial crime.

In response, Starling has cooperated with the FCA, resulting in a 30% reduction in the fine. The bank has since committed to improving its processes to prevent further regulatory breaches.

David Sproul, Starling’s chairman, expressed regret over the bank’s failings: “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.”

Sproul emphasized that these issues are now in the past and that Starling has learned from the investigation, positioning itself for sustainable growth backed by a more robust risk management framework.

Starling isn’t the only challenger bank under scrutiny. Monzo, another U.K. challenger bank, also faced a regulatory investigation, but the FCA ultimately dropped its criminal probe after two years. Meanwhile, Revolut was flagged by the FCA for suspicious accounts in 2023. Although it was initially only an e-money institution, Revolut was granted a U.K. banking license in July 2024 after a lengthy application process.