Starling Bank cracks down on debtors as regulator probes financial crime controls
Starling Bank has taken legal action against two dozen bad debtors as it grapples with rising defaults and a City watchdog probe into its financial crime controls.
Since May, the digital-only lender has filed winding-up petitions against 24 firms that have defaulted on loans, according to court filings. Most of these companies have reported little or no business activity, the Financial Times reported.
Three of the companies have never filed accounts, while another six have been dormant since they were incorporated. One debtor’s accounts claimed that for each year of trading, “the average number of employees during the year was NIL”.
Others have only filed accounts with a few hundred pounds worth of transactions.
In its annual report last week, Starling posted a 40 per cent rise in money set aside for bad loans to £13.9m, as well as that the Financial Conduct Authority (FCA) had opened an investigation last November regarding “aspects of its anti-money laundering and financial crime systems and control framework”.
The bank warned that “the potential impact of the investigation is currently unquantifiable but could be material”.
Eight of the debtors successfully applied for a Starling loan after incorporating in 2019 or afterwards. Starling has been criticised by politicians for using government-backed lending schemes during the Covid-19 pandemic to drive the expansion of its loan book.
The bank reported last week that, as of the end of March, roughly 90 per cent of its outstanding loans to small and medium-sized enterprises (SMEs) was guaranteed by the UK government.
A Starling spokesperson said: “We have an ongoing process of review of all our lending and take a proactive stance on recovery of defaulted loans.”
They added that the bank continued to take steps to “identify and report suspected fraud and wrongdoing to law enforcement and other agencies and to work with them as appropriate”.
Starling was cooperating with the FCA and “in some cases, have proactively identified and reported areas for improvement to our regulators”, the spokesperson said.
The news comes after digital-only rival Monzo revealed earlier this month that the FCA had dropped a criminal money laundering investigation and was continuing it as a civil matter, which may result in fines.