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Starling Bank is pursuing several borrowers who have never shown signs of active trading as the fintech, which relied on government-backed loans for Covid-19, struggles with rising defaults and probes its financial crime controls.
Since May, Starling has filed for liquidation of 24 companies that defaulted on loans, British court files show. Most of the entities showed little or no business activity, three never provided accounts, while a further six had been inactive since inception, according to company filings analyzed by the Financial Times.
The London-based fintech’s legal action against bad borrowers comes as it has seen a spike in bad loans and revealed last week that it was being investigated by UK regulators over its financial crime controls.
Starling said in its annual report last week that the Financial Conduct Authority launched an investigation in November into “aspects of its anti-money laundering and financial crime systems and control framework”. It also warned that the impact of the probe could be material.
One of the companies that Starling brought a claim against, Cambridge Newton Capital, bills itself as an investment firm that also provides “financial planning advice” to clients but has never been regulated by the FCA. The company that received the loan from Starling filed micro business accounts during its mostly dormant life. He deleted his website after being contacted by the FT.
Cambridge Newton Capital did not respond to requests for comment.
Another debtor against whom a winding-up application was filed, Bedford-based Boyee Trading Ltd, filed accounts claiming that for each year of trading “the average number of employees during the year was NIL”. Boyee could not be reached for comment by email or phone.
A collection of others always published accounts with transactions worth several hundred pounds.
Eight entities were newly enrolled in 2019 or later before successfully applying for a loan from Starling.
Around 90 per cent of Starling’s £830m of outstanding loans to SMEs were guaranteed by the UK government at the end of March, it announced last week.
In 2021, the bank owed more than £2.1 billion in government debt, which it accessed through one of the UK’s pandemic loan schemes — the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Recovery Loan Scheme (RLS ).
Figures released by the neobank show the government has repaid around £630m of its bad credit debt since 2021.
A spokesman for Starling Bank said: “We are in the process of reviewing all our loans and we are taking a proactive approach to recovering non-performing loans.”
The fintech continues to take steps to “identify and report suspected fraud and wrongdoing to law enforcement and other authorities and cooperate with them as appropriate,” they added.
Starling said it was co-operating with the FCA’s probe and that it had “proactively identified areas for improvement in some cases and reported them to our regulators”.
Starling has previously drawn the ire of politicians after expanding its lending largely using government-backed loans with minimal customer checks. Starling differed from most of its larger rivals in that it lent to new customers rather than existing ones.
The bank made a £13.9m provision for bad loans in the year to the end of March, up 40 per cent on the previous year, as it flagged a rise in default rates across its SME loan portfolio.
Kathryn Westmore, senior researcher at the Center for Finance and Security at the Royal United Services Institute think tank, said the FCA’s concerns about poor financial crime control by non-banks were beginning to translate into potential enforcement action against big players such as Starling and Monzo, which is also under a similar probe.
Monzo said earlier this month that the FCA had told him it had dropped a criminal money-laundering investigation, although a civil investigation was ongoing.
Westmore said: “Over the next few years we could start to see some big fines for some of these fintechs.”