Starling Bank’s Profits Dip Due to COVID and Crime Control Issues

Neobank Starling expanded its customer base last year, even as regulatory issues diminished profits.

The U.K.-based company released full-year earnings Wednesday (May 28), showing customer deposits reaching a record 12.1 billion pounds ($16.3 billion), up from 11 billion pounds the prior year. Open accounts came to a high of 4.6 million, a 10% increase from the previous year.

However, Starling’s profit before tax fell to 223 million pounds, a nearly 26% year-over-year drop, as it addressed what it called “one-off costs relating to two legacy matters.”

The first of these matters was a provision of 28.2 million pounds related to some of the loans it issued for a COVID-era support program. Those loans, Starling said, “potentially did not comply with a guarantee requirement.”

A report Wednesday by the Financial Times (FT) notes that Starling’s pandemic lending efforts had been criticized, with the bank developing a loan portfolio for new customers that had a 100% guarantee from the British Business Bank, subject to eligibility.

The “bounce back” loans were issued by lenders to quickly bolster struggling businesses during the pandemic, and became a substantial part of Starling’s lending portfolio, the FT said.

But the program has since come under scrutiny, the report added, with the government calculating in 2022 that up to 4.9 billion pounds of the 47 billion pounds that banks lent between May 2020 and March 2021 was lost to fraudsters.

Also cutting into profits was a penalty of 29 million pounds levied by the U.K.’s Financial Conduct Authority (FCA) in October, related to the bank’s financial crime prevention measures.

“Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions,” Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said at the time.

“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.”

Starling said Wednesday that, thanks to “extensive investment in resources and expertise relating to financial crime,” it “has an established risk management and control framework that will support a new phase of safe, sustainable growth.”

As PYMNTS has written, the fine against Starling came amid a wave of regulatory oversight into the U.K. challenger bank space. Weeks after citing Starling, the FCA fined Metro Bank 16.7 million pounds for a lack of proper money laundering protections on 60 million transactions over a four-year stretch between 2016 and 2020.

The PYMNTS Intelligence report “Digital Banking: The Brewing Battle for Where We Will Bank” found that 25% of consumers mentioned data security as one of the chief reasons they have not moved to digital-only banking services.