In light of a recent regulatory investigation, a former minister has urged the government to review whether funds should be reclaimed from Starling Bank. This appeal comes after findings indicated that the bank left the financial system vulnerable to criminal activity.

Lord Agnew of Oulton has highlighted concerns regarding Starling’s involvement in a £47 billion pandemic loan scheme, following a £29 million fine imposed by the City regulator this week.

The Financial Conduct Authority (FCA) criticized Starling for having “shockingly lax” controls against financial crime, a matter first brought to the bank’s attention in 2021.

In a confrontation from 2022, Anne Boden, the founder of Starling, threatened legal action against Agnew after he labeled the bank as one of the most inadequate lenders in protecting against abuses of the bounceback loan scheme, which was established to support small businesses during the pandemic.

Boden did not inform Agnew that in March of the preceding year, the FCA had communicated extensive concerns regarding Starling’s anti-money laundering and sanctions systems.

In September 2021, Starling had reached an agreement with the FCA to suspend opening new accounts for high-risk customers until control measures were improved, a lapse that contributed to its recent fine.

In June 2022, Boden responded to Agnew’s accusations, asserting that he made “wild accusations” and requesting the withdrawal of what she termed “defamatory remarks.” She claimed in correspondence, which has been reviewed by The Times, that significant measures were in place to prevent the misuse of funds.

This week, the FCA reported that Starling failed to effectively “design, implement, and maintain adequate systems and controls” to mitigate risks related to financial crime, leaving the financial system susceptible to illicit actors and those under sanctions.

The regulator noted that Starling’s financial controls did not evolve in line with its rapid growth, expanding from its first account in July 2016 to 3.6 million customers by last year. Interestingly, the bounceback loan scheme was not directly mentioned in the FCA’s investigation findings.

Starling emerged as a prominent provider in the bounceback scheme, having lent over £1.6 billion through nearly 54,000 facilities. Approximately 14 percent of new business accounts created by Starling during the scheme’s operational window cited this initiative.

Official data shows that Starling has claimed £84 million under the taxpayer guarantee, citing “fraud” as the cause — a statistic that is among the highest proportion attributed to major lenders.

Starling has suggested that comparisons with other lenders may be misleading, arguing that lender experiences varied and that there were no uniform metrics for identifying suspected fraud. During the disbursement process, banks were often compelled to forego typical checks to expedite funding to businesses.

Agnew, who resigned in January 2022 after accusing the government of inadequate oversight of the scheme, remarked, “The government should evaluate the FCA’s findings and determine if there is a need for any recovery of taxpayer funds granted to Starling for fraud-related losses. The significant increase in Starling’s loan portfolio and customer base facilitated by this government initiative is quite alarming.”

A spokesperson for Starling explained that the FCA’s fine is associated with breaches of their agreement regarding high-risk accounts and sanctions controls, asserting that regular audits related to the bounceback scheme have continuously yielded favorable results.

Additionally, a representative for the British Business Bank, which managed pandemic financial schemes, stated that they have mechanisms in place to address any issues with lenders, stating that if ineligible loans were found, they would expect them to be returned and the guarantees rescinded.

Boden was contacted for a response.