Starling Bank, a UK-based online lender, has reported a notable decline in annual profits, attributing this downturn to complications stemming from pandemic-related business loan fraud and a substantial regulatory penalty for shortcomings in its financial crime prevention systems. For the fiscal year ending March 31, 2025, the bank posted a pre-tax profit of £223.4 million ($301.9 million), marking a decrease of nearly 26% compared to the previous fiscal year.
While Starling’s revenue did increase to £714 million from £682 million—a modest growth of about 5%—the bank acknowledged that this growth represents a significant slowdown from the more than 50% revenue expansion experienced in its 2024 fiscal year. The fiscal challenges were, in part, exacerbated by a £29 million fine imposed by the UK’s Financial Conduct Authority (FCA), wherein the bank faced scrutiny for deficiencies in its financial crime prevention frameworks.
The regulator’s action is emblematic of broader concerns within the financial services industry regarding compliance and the efficacy of systems designed to combat financial misconduct, especially in the wake of unprecedented government lending programs instituted during the COVID-19 pandemic. In this context, Starling was one of several banks authorized to distribute funds through the Bounce Back Loan Scheme (BBLS), a program designed to facilitate swift financial relief for businesses struggling during the pandemic. The scheme was particularly attractive to lenders due to its provision of a 100% government guarantee, thereby mitigating the risk of default.
However, Starling identified issues with a segment of BBLS loans where compliance with the government guarantee requirement was in question, attributable to weaknesses in its historical fraud prevention checks. Following this discovery, the bank took the proactive measure of alerting the British Business Bank, the government entity responsible for the BBLS, and subsequently volunteered to relinquish the government guarantee associated with these loans. As a result, the bank has set aside a provision of £28.2 million in its current financial statements, a figure that encompasses both the FCA fine and the BBLS complications.
Furthermore, the bank has indicated that it holds an Expected Credit Loss provision of £800,000 related to specific BBLS loans, a contingency reflecting potential risks associated with the absence of the government guarantee. Declan Ferguson, Starling’s Chief Financial Officer, expressed in a media call that this situation represents a “legacy issue,” assuring stakeholders of the bank’s commitment to transparency and cooperation with the British Business Bank throughout the resolution process.
Since its inception as a licensed bank in the UK in 2018, Starling has attracted significant investment from notable entities, including Goldman Sachs, Fidelity Investments, and the Qatar Investment Authority. Despite its achievements in establishing itself as a competitive player in the fintech landscape, Starling now faces mounting pressure from traditional banks and rival fintech companies such as Monzo and Revolut, which continue to encroach on its market share.
As Starling Bank navigates these tumultuous challenges, its ability to recover from the current setbacks will likely hinge on its strategic responses to regulatory scrutiny and competitive dynamics in the rapidly evolving financial sector. The coming fiscal years will be critical for the bank as it works to rebuild its reputation and continue its trajectory in the competitive world of digital banking. Investors and stakeholders alike will be observing its next steps to address the issues raised and assess how effectively it can reclaim its position within an increasingly crowded marketplace.