Starling Bank fined £29m for sanctions breaches
The UK financial regulator has fined app-based Starling Bank £29m for “shockingly lax” failures related to financial sanctions screening.
The Financial Conduct Authority (FCA) said that Starling had reported “multiple potential breaches of financial sanctions” despite its financial checks process being under scrutiny by the regulator.
The fine was reduced by 30% from £41m because it agreed to resolve the issues.
Starling has grown rapidly as it aims to take on the big high-street lenders with an app-only offering. It is one of several app-only competitors that have started up in the last decade, including rivals such as Monzo and Revolut.
However, the rush to grow has caused concerns. Starling Bank was criticised in 2022 by a former government minister who claimed it did not run adequate checks on borrowers before handing out taxpayer-backed Covid-19 loans. Starling Bank’s founder, Anne Boden, at the time said she was “shocked” by Agnew’s comments, asked the former minister to withdraw his statements, and said the bank was one of the “most active and effective banks fighting fraud”.
Yet as far back as 2021 the FCA had “identified serious concerns with the anti-money laundering and sanctions framework” at the bank.
Starling agreed to regulatory restrictions preventing it from opening new accounts for high-risk customers until it improved, but the FCA said that it failed to comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said:
Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions. 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.
Key events
Mark Sweney
Post office operators affected by the Horizon IT scandal will not all receive payouts by the March 2025 deadline called for by the campaigner Sir Alan Bates, the postal minister has admitted.
Gareth Thomas said it would be difficult to achieve the deadline but promised that there would be “substantial progress” toward clearing the compensation claim backlog by next summer.
Last month, Bates sent a letter to hundreds of former branch owner-operators calling for a March 2025 deadline for financial redress for those affected by the Horizon scandal, in which hundreds of post office operators were wrongly pursued through the courts over account shortfalls that were later linked to a faulty IT system.
“I wish I could commit to Sir Alan’s timeframe,” said Thomas, speaking to BBC Breakfast on Wednesday. “I think we will have made substantial progress by next summer.”
Starling said in a statement that it accepts the FCA’s findings in full, and apologised.
David Sproul, chairman of Starling Bank, said:
I would like to apologise 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. 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 opened a bank account for a person under sanctions. A review found that “at least one designated person had opened an account with them”.
A report detailing the failings was presented to the board in April 2023, a month before Anne Boden stepped down as chief executive.
More details of the oversights from Starling:
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It said that it screened customers against US, EU and UK sanctions lists, but “only screened its customers against the sanctions records for individuals who were known to reside or have links to the UK”, and failed to check against US sanctions lists at all.
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A misconfigured system meant that its automatic screening was only checking the names of 39 out of 3,088 people on the UK sanctions list.
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When the fault was corrected, it created 48,000 alerts for account creation that had not previously been flagged. 796,000 payments were red flagged.
The FCA was damning on Starling Bank’s leadership under founder Anne Boden, who left the business in May 2023.
“Starling’s senior management as a whole lacked the experience and capability” to introduce controls, the FCA said. “They lacked the required AML [anti-money laundering] skills or experience.”
Starling’s senior management failed to adequately oversee and monitor the day-to-day compliance […] There were also key failings in the communications between senior management and the staff responsible for the day- to-day implementation.
The bank only managed its first month without a high-risk client joining in April 2024.
Starling has promised to spend significantly more on financial crime compliance, and has also promised to carry out “historic financial sanctions screening reviews of its entire customer base and payments dating back to 2017”.
That will likely imply a cost of millions of pounds above the £29m fine.
The problem is not limited to Starling. The FCA said:
The Authority found that the challenger bank sub-sector as a whole needed to do more in relation to their financial crime controls.
Starling’s financial crime controls “failed to keep pace with its growth”, the Financial Conduct Authority said in an official notice detailing its reasons for a £29m fine.
The bank put in place a financial sanctions screening framework in 2017. However, its automated screening system had only been screening the names of new and existing customers against “a fraction” of the names on the UK’s consolidated list – resulting in many oversights.
The FCA did not say which individuals under sanctions that Starling dealt with, but the regulator noted that it had written to Starling and other banks in February 2022 – as Russia launched its full-scale invasion of Ukraine – to remind them of their duties to comply with updated sanctions rules relating to Russia.
Starling failed to ensure that its screening of customers and payments was sufficient to prevent this during the relevant period.
Other control failures included:
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Allowing 294 customers to open accounts after they had been dropped for reasons relating to financial crime.
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It then found that thousands of customers had opened accounts despite not meeting restrictions.
Starling Bank fined £29m for sanctions breaches
The UK financial regulator has fined app-based Starling Bank £29m for “shockingly lax” failures related to financial sanctions screening.
The Financial Conduct Authority (FCA) said that Starling had reported “multiple potential breaches of financial sanctions” despite its financial checks process being under scrutiny by the regulator.
The fine was reduced by 30% from £41m because it agreed to resolve the issues.
Starling has grown rapidly as it aims to take on the big high-street lenders with an app-only offering. It is one of several app-only competitors that have started up in the last decade, including rivals such as Monzo and Revolut.
However, the rush to grow has caused concerns. Starling Bank was criticised in 2022 by a former government minister who claimed it did not run adequate checks on borrowers before handing out taxpayer-backed Covid-19 loans. Starling Bank’s founder, Anne Boden, at the time said she was “shocked” by Agnew’s comments, asked the former minister to withdraw his statements, and said the bank was one of the “most active and effective banks fighting fraud”.
Yet as far back as 2021 the FCA had “identified serious concerns with the anti-money laundering and sanctions framework” at the bank.
Starling agreed to regulatory restrictions preventing it from opening new accounts for high-risk customers until it improved, but the FCA said that it failed to comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said:
Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions. 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.
Eurozone unemployment remained at 6.4% in August. That was a continued record low, despite a weakening economy.
However, economists expect the rate to increase in the coming months, as weakness – notably in Germany, the EU’s largest economy – feeds through to job losses.
Bert Colijn, chief economist at ING, a Dutch investment bank, said:
The unemployment rate remains at the lowest level recorded since the eurozone began in 1999. The low rate remains remarkable given the sluggish economic environment that the eurozone has been in since late 2022. But labour demand remains high despite a weak economic environment. That results in worrisome productivity developments, but also boosts household income growth and confidence in the short-term.
Israel ‘could target Iran oil facilities’ in retaliation for missile attack
Israel could target Iranian oil refineries in retaliation for Tuesday night’s attack, in which Tehran launched an estimated 180 ballistic missiles at Tel Aviv and other targets across the country in a dramatic escalation of the conflict between the two countries, write the Guardian’s Peter Beaumont and Andrew Roth.
The US website Axios has reported that Israeli officials are considering a “significant retaliation” to the Iranian attack within days that could target oil production facilities inside Iran and other strategic sites.
US lawmakers have backed a strike against Iranian oil production. Sen Lindsey Graham, of South Carolina, said he would “urge the Biden administration to coordinate an overwhelming response with Israel, starting with Iran’s ability to refine oil”. In a statement, he said Iran’s oil refineries should be “hit and hit hard”.
You can read the full story here:
Axios reported:
Many Israeli officials point to Iran’s oil facilities as a likely target, but some say targeted assassinations and taking out Iran’s air defense systems are also possibilities.
Iran’s oil is sanctioned by the USA, so it does not directly reach the US or its allies (indirectly is another matter). However, there are plenty of other non-allied countries who are willing to buy it, so any disruption to Iranian oil supplies would probably impact the global market and raise prices.
Shipping company Maersk has said that it is continuing to send ships to Beirut, despite the incursion of Israeli troops into Lebanon and the heavy bombardment of its capital.
“While Maersk’s business in the country is impacted, we currently remain in a position to serve our customers,” a Maersk spokesperson said in an email reported by Reuters.
Beirut’s port handled 827,000 twenty-foot equivalent unit (TEU) shipping containers in 2023. That does not put it in the ranks of the biggest ports in the Mediterranean, but does make it a vital trade artery for Lebanon.
Lebanon has been struggling with economic crisis for several years. The port was significantly damaged in August 2020 by a huge explosion caused by a consignment of ammonium nitrate, used in fertiliser.
Maersk said all staff in both Lebanon and Israel were safe and accounted for.
Maersk’s office in Lebanon is located in Beirut and employs 21 people.
Saudi Arabia reportedly said oil prices could drop to $50 per barrel
Oil prices may be up today, but Saudi Arabia is warning that prices could fall as low as $50 per barrel, the Wall Street Journal reports.
The reported comments came ahead of an online meeting on Wednesday of the Organization of the Petroleum Exporting Countries and allies, an oil cartel described as Opec+ that controls a large proportion of global supplies.
Before the escalation of the Middle Eastern crisis, oil prices had been on a downward path for weeks – and prices are well below the $90 per barrel level a year ago despite the conflict.
The Saudi energy minister warned other Opec+ members that they should comply with production cuts to avoid further price drops. The Wall Street Journal reported:
During a conference call last week, Prince Abdulaziz bin Salman, the oil minister of OPEC kingmaker Saudi Arabia, warned fellow producers prices could drop to $50 a barrel if they don’t comply with agreed production cuts, according to OPEC delegates who attended the call.
Falling oil prices would help consumers after several years of inflation – and it could help Kamala Harris in her effort to defeat Donald Trump in the US presidential election. However, oil producers – with Saudi Arabia as the biggest – want to sustain prices.
AO World agrees £10m takeover of phone reseller musicMagpie (after £200m listing)
One share price that has surged on Wednesday is that of musicMagpie. The second-hand smartphone seller is up 48% after retailer AO World agreed a takeover.
But it is hardly a happy ending for musicMagpie, which started out as a reseller of CDs and DVDs. It listed shares in 2021 with a heady £200m+ valuation (netting chief executive and co-founder Steve Oliver £12m in the process). But the 9.07p-per-share takeover values the company at only £10m three years later.
As any buyer of second-hand electronics knows, you have to be careful what you pay for. Investors in musicMagpie bought in during the coronavirus pandemic boom in tech sales. Shortages of computer chips meant that electronic devices were hard to come by, which helped resellers.
However, that boom had petered out by early 2022, and musicMagpie’s share price slumped as it turned lossmaking.
It has had some interest since, notably with BT Group last year considered a bid to complement its EE mobile network business, which also sells electronics. But its share price was at 5.75p on Tuesday before the takeover was announced – 97% down from the heights above £2 in April 2021.
The directors of musicMagpie unanimously backed the takeover.
John Roberts, AO’s chief executive, said:
To achieve our strategic ambition of becoming the destination for electricals, it is crucial for AO to enhance its consumer tech offering. A top-tier trade-in service will be essential, and musicMagpie represents a significant enabler in unlocking value through our reverse supply chain.
JD Sports’ UK business struggles with Red Sea disruption and wet weather
Sarah Butler
The biggest share price drop on the FTSE 100 this morning is trainer and clothing retailer JD Sports. It is down by 3.6% on Wednesday morning.
UK business has been hit by falling sales after disruption in the Red Sea stalled deliveries and the cold wet spring reduced demand for camping kit and clothing.
The retail group, which owns Millets and Blacks in the UK, said sales at the outdoor kit chain were down 5.3% in the six months to 3 August as “key product lines” had been delayed by Houthi attacks off Yemen delaying or rerouting shipping and the early date of Easter fell outside the camping season for the first time since 2018.
It said poor weather compounded the issue, reducing demand for seasonal outdoor living product such as tents and camping equipment.
The chilly wet weather also hit the group’s main JD sportswear chain in the UK where sales at established stores were down 4.6% in what the group described as a “challenging and often volatile UK market”.
JD said discounting in the market had surged after “unfavourable spring and early summer weather conditions, dampened footfall and full price demand for seasonal [clothing]”.
Oil prices have bumped up further as European traders switch on – both Brent and West Texas Intermediate are up by more than 2% now.
That has helped oil companies. BP and Shell are among the top gainers on London’s FTSE 100 index, thanks to higher oil prices. They rose by 2% and 1.9% respectively.
TotalEnergies, France’s oil supermajor, rose by 2.1%, while Italy’s Eni gained 1.3%.
European stock markets have gained ground on Wednesday morning – suggesting that the selloff in response to the Middle Eastern conflicts is so far limited to oil prices.
Here are the opening stock market index snaps from Reuters:
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EUROPE’S STOXX 600 UP 0.2%
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BRITAIN’S FTSE 100 UP 0.3%
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GERMANY’S DAX FLAT
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FRANCE’S CAC 40 UP 0.3%
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SPAIN’S IBEX DOWN 0.3%
Oil prices rise as investors await Israeli response to Iran missile attacks
Good morning, and welcome to our live coverage of business, economics and financial markets.
Oil prices rose on Wednesday morning as investors around the world weighed the risk of threats to energy supplies after Iran’s missile attack on Israel threatened to escalate the Middle East conflict.
The price of Brent crude oil futures, the North Sea benchmark, rose by 1.6% to $74.75, while the price of futures for its North American counterpart, West Texas Intermediate, rose by 1.7% to $70.98.
Prices surged on Tuesday as reports of Iran’s imminent attack emerged. The attack was a response to Israel’s killing last week of Sayyed Hassan Nasrallah, the leader of Lebanon’s powerful militant group, Hezbollah. Hezbollah is widely seen as an Iranian proxy, and Israeli troops have moved into Lebanon.
Brent crude prices rose by 3.8%, after the largest intra-day move since April 2023, according to analysts led by Jim Reid at Deutsche Bank. They wrote:
There were some indications that escalation risks might be higher this time around. The Pentagon said that this attack used around twice as many ballistic missiles as the one in April, while Iranian commentary was more ambiguous on whether the attack would be one-off.
Most Asian stock markets outside China slumped on Wednesday morning, following the lead of US indices the night before. Japan’s Nikkei slumped by 2.2%, South Korea’s Kospi fell by 0.6%, and Australia’s ASX 200 index fell by 0.1%.
However, Hong Kong’s stock market soared by 6% amid Beijing’s stimulus, which has pushed up Chinese stocks. The mainland Chinese stock markets were closed for the Golden Week holiday.
Investors are now considering whether Israel will respond directly to Iran, while Israeli forces continued to strike Beirut, Lebanon’s capital. Israel has also been fighting in Gaza, to its west, for almost a year after the attacks by Hamas on 7 October.
Mohit Kumar, chief economist for Europe at Jefferies, an investment bank, said:
Risk off dominated the markets on escalation in the Middle East. Oil moved higher on geopolitical risks. Markets did stabilise after the initial risk off and investors now wait for the response from Israel.
The agenda
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10am BST: Eurozone unemployment rate (August; previous: 6.4%; consensus: 6.4%)
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1:15pm BST: US ADP employment change (September; prev.: 99,000; cons.: 120,000)