Starling Bank’s Profits Drop 26% Amid Regulatory Challenges

Starling Bank, a leading UK challenger bank, reported a 26% decline in pre-tax profits to £223 million for the year ending March 2025, driven by two significant regulatory issues.

Despite the profit drop, the digital-only bank, backed by Goldman Sachs and Chrysalis, achieved its fourth consecutive year of profitability, with revenues rising from £682 million to £714 million.

The bank’s customer base grew to 4.6 million from 4.2 million, and customer deposits increased from £11 billion to £12.1 billion, reflecting robust growth in its core operations.

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Regulatory Hurdles Impact Finances

Starling’s financial performance was hampered by a £29 million fine from the UK’s Financial Conduct Authority (FCA) for inadequate financial crime screening controls, described as “shockingly lax” by regulators.

Additionally, the bank set aside a £28.2 million provision to address issues with loans issued under the government’s Bounce Back Loan Scheme during the Covid-19 pandemic.

Approximately 1.8% of the £1.6 billion lent through the program failed to meet guarantee requirements, prompting scrutiny.

Starling faced allegations from former anti-fraud minister Lord Agnew, who claimed the bank’s fraud prevention measures were insufficient, an accusation Starling firmly denied.

These legacy issues have prompted the bank to strengthen its compliance framework to prevent future setbacks.

Did You Know?
The UK’s digital banking sector serves over 25 million customers, with challenger banks like Starling driving competition against traditional institutions, according to recent industry reports.

Strategic Growth and Future Outlook

Despite regulatory challenges, Starling highlighted its commitment to innovation and customer service. The bank’s deposit growth and expanding customer base underscore its appeal in the competitive UK banking sector.

Starling’s Software-as-a-Service (SaaS) business, Engine by Starling, is gaining traction, with projections of over £100 million in recurring revenues in the near future.

Raman Bhatia, Starling’s group chief executive, emphasized the bank’s strong capital position and plans to scale operations in the UK while positioning Engine for global success.

Recent industry data indicates that UK challenger banks like Starling are capturing a growing share of the market, with digital banking adoption rising 15% year-over-year as consumers shift toward mobile-first financial solutions.