Starling Bank has taken significant legal steps against firms defaulting on Covid loans, filing winding-up petitions against 24 companies in the past month, according to a report by the Financial Times.
The targeted companies received funding through the government’s bounce back loan scheme, which aimed to provide essential financial support to SMEs during the Covid-19 lockdowns. These loans, up to £50,000 with a 100% government guarantee, were crucial in helping small businesses stay afloat during the pandemic. However, many of these companies now show limited or no trading activity, raising concerns over the effective utilisation of these funds.
Meanwhile, Starling Bank faces heightened scrutiny from the Financial Conduct Authority (FCA) regarding its compliance with UK money-laundering regulations. This investigation adds another layer of complexity to the bank’s current challenges. Founded in 2014 by Anne Boden, who recently departed from her role, the bank has expanded rapidly, now boasting approximately 4.2 million customer accounts and reporting a pre-tax profit of £301.1 million for the year ending March 2023. Its rapid growth has been partly fuelled by its active participation in various government-backed lending schemes during the pandemic.
However, Starling’s involvement in these programmes has not been without controversy. Former anti-fraud minister Lord Agnew previously accused the bank of inadequate fraud prevention measures under the bounce back loan scheme—a claim that Anne Boden has strongly refuted. The bank’s internal figures indicate that lending to SMEs reached nearly £832 million as of March 2023, with about £742 million backed by government guarantees. Additionally, Starling has reported a 43.3% increase in impairment charges for potential bad loans, now amounting to £12.2 million. These charges are largely attributed to an uptick in mortgage lending and higher default rates in unsecured SME loans.
A spokesperson for Starling described the winding-up petitions as a routine procedure for recovering defaulted loans, underscoring the bank’s proactive approach to loan recovery and fraud mitigation. Starling’s latest annual report disclosed that the FCA began its investigation into the bank’s anti-money laundering and financial crime controls in November. While the bank is cooperating fully with the FCA, the potential outcomes of this investigation remain uncertain but could be significant.
In terms of leadership, John Mountain is currently serving as the interim chief operating officer, following Anne Boden’s departure. The bank is also set to welcome Raman Bhatia, formerly of Ovo, as the new chief executive next week. This leadership transition occurs at a critical time as the bank navigates through various regulatory and operational challenges.
The ongoing legal actions and regulatory investigations highlight the complex landscape Starling Bank must navigate as it seeks to recover from the pandemic’s financial disruptions. With significant challenges ahead, the bank’s leadership and proactive measures will be pivotal in steering the institution through this period of heightened scrutiny and operational change.
