Closing summary: Starling fined £29m; oil prices in spotlight amid Middle East crisis
Starling Bank has been fined £29m by the City watchdog for “shockingly lax” financial crime controls which “left the financial system wide open to criminals and those subject to sanctions”.
The Financial Conduct Authority (FCA) said the challenger bank had grown quickly but “measures to tackle financial crime did not keep pace with its growth”.
Starling, a UK-based online bank founded in 2014 by entrepreneur Anne Boden, grew rapidly, from 43,000 customers in 2017 to 3.6 million in 2023.
Banks are required by law to conduct rigorous checks on new customers to prevent fraud and money laundering.
Starling said it “regrets and apologises” for its failings, and has paid the fine as full and final settlement. It added that it had rescreened transactions and reviewed its customer accounts in depth, and introduced additional safeguards.
In other business news today:
Oil prices rose for the second day in a row after Iran’s missile attack on Israel threatened to escalate the Middle East crisis.
A long-serving former Harrods executive has stepped back from plans to become boss of department store Fenwick chain this month amid controversy about the activities of the late owner of the Knightsbridge department store, Mohamed Al Fayed.
Rail passengers using London’s Euston station are being put in danger from high levels of overcrowding, a transport watchdog has warned.
JD Sports’ UK business has been hit by falling sales after disruption in the Red Sea stalled deliveries and the cold, wet spring reduced demand for camping kit and clothing.
Tesla missed car delivery expectations, giving it a harder task to beat last year’s numbers.
The Saudi energy minister warned other members of the Opec+ oil cartel that they should comply with production cuts to avoid prices dropping as low as $50 per barrel.
You can continue to follow our live coverage from around the world:
In our coverage of the Middle East crisis, Israel and Hezbollah fighters clash on the ground in Lebanon after Israel sends in more troops
In the US, reaction to the Vance-Walz debate
In the UK, Tory leadership rivals make pitch to members at party conference
Thank you for reading today, and please do join us tomorrow bright and early for more of the same. JJ
Wall Street stock market indices have dipped at the opening bell in New York, as investors try to work out what will happen next in the Middle East crisis.
Here are the opening snaps via Reuters:
S&P 500 DOWN 13.44 POINTS, OR 0.24%, AT 5,695.31
NASDAQ DOWN 45.08 POINTS, OR 0.25%, AT 17,865.28
DOW JONES DOWN 23.96 POINTS, OR 0.06%, AT 42,133.01
Tesla has marginally missed expectations for the number of deliveries of electric cars in the third quarter of the year, as carmakers contend with slowing demand around the world.
The US electric carmaker delivered 463,000 vehicles in the July-to-September quarter, compared with the 469,000 average expected by analysts polled by London Stock Exchange Group.
Tesla shares fell by 4% in pre-market trading.
Wall Street on average had expected the Elon Musk-led company to deliver 469,828 vehicles, according to 12 analysts polled by LSEG.
The figures mean that Tesla will have to manage 516,000 deliveries in the fourth quarter to match last year’s total of 1.81m, Reuters reported.
The EU’s proposed tariffs on Chinese EV imports are likely to pass on Friday, according to Reuters, citing sources who suggest the measure will have enough support to pass a vote on Friday.
Reuters reported:
France, Greece, Italy and Poland will vote on Friday in support of imposing tariffs of up to 45% on imports of electric vehicles (EVs) made in China, enough to get the European Union proposal passed, in a move likely to increase trade tensions with Beijing, sources said.
The tariffs are aimed at countering the alleged state support handed to China’s car manufacturing industry, which has allowed exported vehicles to be sold at cheaper prices than those of global rivals, according to the EU.
Stronger-than-expected US jobs numbers would usually suggest that the world’s largest economy is doing better than expected.
Reuters reported that US stock market futures narrowed some of the day’s losses ahead of proper trading opening in an hour’s time.
The US dollar index also gained ground slightly; a stronger economy could make the Federal Reserve slow the pace of interest rate cuts, which would make dollar-yielding assets marginally more attractive.
Naeem Aslam, chief investment officer at Zaye Capital Markets, a trading research company, said:
The US ADP data rolled in like a breath of fresh air for the Fed, printing a much stronger reading than anticipated. This news has certainly put a damper on hopes for a ballistic shift in monetary policy. As a result, gold prices have taken a hit, with the dollar index flexing its muscles. All eyes are now on Friday’s developments.
Friday will bring the big one: the aforementioned non-farm payrolls data.
US job creation accelerated more than expected in September
US hiring accelerated by more than expected in September, with 143,000 jobs created in the private sector according to employment agency ADP.
There was a “widespread rebound after a five-month slowdown” in US job creation, ADP said.
The rapid job creation compared with 99,000 new jobs in August, according to ADP’s data. Economists polled by Reuters had expected ADP to report 120,000 new jobs created in September.
The ADP numbers are a precursor to the closely followed non-farm payrolls data, which show the pace of job creation in the US economy. The non-farms are vital to the Federal Reserve’s monetary policy judgements, as the central bank considers when to cut interest rates.
Bank of England working on digital assets tech to avoid shift away from central bank money
The Bank of England is working on technology to settle blockchain payments using central bank money in order to prevent a shift to private settlement that could undermine financial stablity, according to a senior official.
Sasha Mills, executive director of financial market infrastructure for the Bank, said in a speech on Monday that the Bank was acting to link up the traditional financial sector to digital technologies so that payments continue to be made using central bank money rather than through digital assets such as stablecoins.
Stablecoins are a form of cryptocurrency designed to hold value and make payments quicker and cheaper by avoiding the need for a trusted middleman. They can be used to settle transactions, although in practice adoption has been relatively slow because of technical hurdles and waning interest in cryptocurrency from companies and investors. Their reputation has also suffered after notable collapses that have sparked crypto market turmoil.
Nevertheless, Mills said there was a risk that payments could shift “away from central bank money to private settlement assets, weakening financial stability”. She was speaking at Digital Assets Week, a London conference.
The Bank this week opened a “digital securities sandbox” alongside the Financial Conduct Authority, which regulates financial services firms, to allow companies to test out trading using blockchain technologies. Mills said the regulators had allowed non-sterling assets to be used in the trial after feedback from companies.
Mills said there were risks, but also that digital assets could make payments “faster, cheaper, and more straightforward”. She said:
While unbacked crypto grabs the headlines, to me developments in the underlying technologies, including blockchains and programmable ledgers, may be what will have the lasting positive impact on supporting financial markets and growth.
We have a low-risk appetite for a significant shift away from wholesale settlement in central bank money towards private settlement assets (such as from the use of stablecoins for wholesale transactions), because settlement in central bank money is the anchor back to the state.
At lunchtime in western Europe major stock market indeices are mostly in the red, with only the FTSE 100 up by 0.15%.
However, one industry that is doing well today is weaponry. Escalating conflict in the Middle East is bad for the world, but likely good for weapons sales.
Britain’s BAE Systems was up 2%, Germany’s Rheinmetall was up 2.5%, Italy’s Leonardo gained 4.1%, France’s Thales rose 2.2% and Norway’s Kongsberg rose 3.8%.
Howeverk, some other companies whose defence arms are outweighed by larger aerospace operations were trading flat or down on Wednesday, including Airbus, Dassault, Safran and Qinetiq.
Post office operators affected by the Horizon IT scandal will not all receive payouts by the March 2025 deadline called for by the campaigner Sir Alan Bates, the postal minister has admitted.
Gareth Thomas said it would be difficult to achieve the deadline but promised that there would be “substantial progress” toward clearing the compensation claim backlog by next summer.
Last month, Bates sent a letter to hundreds of former branch owner-operators calling for a March 2025 deadline for financial redress for those affected by the Horizon scandal, in which hundreds of post office operators were wrongly pursued through the courts over account shortfalls that were later linked to a faulty IT system.
“I wish I could commit to Sir Alan’s timeframe,” said Thomas, speaking to BBC Breakfast on Wednesday. “I think we will have made substantial progress by next summer.”
Starling said in a statement that it accepts the FCA’s findings in full, and apologised.
David Sproul, chairman of Starling Bank, said:
I would like to apologise for the failings outlined by the FCA and to provide reassurance that we have invested heavily to put things right, including strengthening our board governance and capabilities. We want to assure our customers and employees that these are historic issues. We have learned the lessons of this investigation and are confident that these changes and the strength of our franchise put us in a strong position to continue executing our strategy of safe, sustainable growth, supported by a robust risk management and control framework.
Starling opened a bank account for a person under sanctions. A review found that “at least one designated person had opened an account with them”.
A report detailing the failings was presented to the board in April 2023, a month before Anne Boden stepped down as chief executive.
More details of the oversights from Starling:
It said that it screened customers against US, EU and UK sanctions lists, but “only screened its customers against the sanctions records for individuals who were known to reside or have links to the UK”, and failed to check against US sanctions lists at all.
A misconfigured system meant that its automatic screening was only checking the names of 39 out of 3,088 people on the UK sanctions list.
When the fault was corrected, it created 48,000 alerts for account creation that had not previously been flagged. 796,000 payments were red flagged.
Updated
The FCA was damning on Starling Bank’s leadership under founder Anne Boden, who left the business in May 2023.
“Starling’s senior management as a whole lacked the experience and capability” to introduce controls, the FCA said. “They lacked the required AML [anti-money laundering] skills or experience.”
Starling’s senior management failed to adequately oversee and monitor the day-to-day compliance […] There were also key failings in the communications between senior management and the staff responsible for the day- to-day implementation.
The bank only managed its first month without a high-risk client joining in April 2024.
Starling has promised to spend significantly more on financial crime compliance, and has also promised to carry out “historic financial sanctions screening reviews of its entire customer base and payments dating back to 2017”.
That will likely imply a cost of millions of pounds above the £29m fine.
The problem is not limited to Starling. The FCA said:
The Authority found that the challenger bank sub-sector as a whole needed to do more in relation to their financial crime controls.
Starling’s financial crime controls “failed to keep pace with its growth”, the Financial Conduct Authority said in an official notice detailing its reasons for a £29m fine.
The bank put in place a financial sanctions screening framework in 2017. However, its automated screening system had only been screening the names of new and existing customers against “a fraction” of the names on the UK’s consolidated list – resulting in many oversights.
The FCA did not say which individuals under sanctions that Starling dealt with, but the regulator noted that it had written to Starling and other banks in February 2022 – as Russia launched its full-scale invasion of Ukraine – to remind them of their duties to comply with updated sanctions rules relating to Russia.
Starling failed to ensure that its screening of customers and payments was sufficient to prevent this during the relevant period.
Other control failures included:
Allowing 294 customers to open accounts after they had been dropped for reasons relating to financial crime.
It then found that thousands of customers had opened accounts despite not meeting restrictions.
Starling Bank fined £29m for sanctions breaches
The UK financial regulator has fined app-based Starling Bank £29m for “shockingly lax” failures related to financial sanctions screening.
The Financial Conduct Authority (FCA) said that Starling had reported “multiple potential breaches of financial sanctions” despite its financial checks process being under scrutiny by the regulator.
The fine was reduced by 30% from £41m because it agreed to resolve the issues.
Starling has grown rapidly as it aims to take on the big high-street lenders with an app-only offering. It is one of several app-only competitors that have started up in the last decade, including rivals such as Monzo and Revolut.
However, the rush to grow has caused concerns. Starling Bank was criticised in 2022 by a former government minister who claimed it did not run adequate checks on borrowers before handing out taxpayer-backed Covid-19 loans. Starling Bank’s founder, Anne Boden, at the time said she was “shocked” by Agnew’s comments, asked the former minister to withdraw his statements, and said the bank was one of the “most active and effective banks fighting fraud”.
Yet as far back as 2021 the FCA had “identified serious concerns with the anti-money laundering and sanctions framework” at the bank.
Starling agreed to regulatory restrictions preventing it from opening new accounts for high-risk customers until it improved, but the FCA said that it failed to comply and opened over 54,000 accounts for 49,000 high-risk customers between September 2021 and November 2023.
Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said:
Starling’s financial sanction screening controls were shockingly lax. It left the financial system wide open to criminals and those subject to sanctions. It compounded this by failing to properly comply with FCA requirements it had agreed to, which were put in place to lower the risk of Starling facilitating financial crime.
Eurozone unemployment remained at 6.4% in August. That was a continued record low, despite a weakening economy.
However, economists expect the rate to increase in the coming months, as weakness – notably in Germany, the EU’s largest economy – feeds through to job losses.
Bert Colijn, chief economist at ING, a Dutch investment bank, said:
The unemployment rate remains at the lowest level recorded since the eurozone began in 1999. The low rate remains remarkable given the sluggish economic environment that the eurozone has been in since late 2022. But labour demand remains high despite a weak economic environment. That results in worrisome productivity developments, but also boosts household income growth and confidence in the short-term.
Israel 'could target Iran oil facilities' in retaliation for missile attack
Israel could target Iranian oil refineries in retaliation for Tuesday night’s attack, in which Tehran launched an estimated 180 ballistic missiles at Tel Aviv and other targets across the country in a dramatic escalation of the conflict between the two countries, write the Guardian’s Peter Beaumont and Andrew Roth.
The US website Axios has reported that Israeli officials are considering a “significant retaliation” to the Iranian attack within days that could target oil production facilities inside Iran and other strategic sites.
US lawmakers have backed a strike against Iranian oil production. Sen Lindsey Graham, of South Carolina, said he would “urge the Biden administration to coordinate an overwhelming response with Israel, starting with Iran’s ability to refine oil”. In a statement, he said Iran’s oil refineries should be “hit and hit hard”.
You can read the full story here:
Axios reported:
Many Israeli officials point to Iran’s oil facilities as a likely target, but some say targeted assassinations and taking out Iran’s air defense systems are also possibilities.
Iran’s oil is sanctioned by the USA, so it does not directly reach the US or its allies (indirectly is another matter). However, there are plenty of other non-allied countries who are willing to buy it, so any disruption to Iranian oil supplies would probably impact the global market and raise prices.
Shipping company Maersk has said that it is continuing to send ships to Beirut, despite the incursion of Israeli troops into Lebanon and the heavy bombardment of its capital.
“While Maersk’s business in the country is impacted, we currently remain in a position to serve our customers,” a Maersk spokesperson said in an email reported by Reuters.
Beirut’s port handled 827,000 twenty-foot equivalent unit (TEU) shipping containers in 2023. That does not put it in the ranks of the biggest ports in the Mediterranean, but does make it a vital trade artery for Lebanon.
Lebanon has been struggling with economic crisis for several years. The port was significantly damaged in August 2020 by a huge explosion caused by a consignment of ammonium nitrate, used in fertiliser.
Maersk said all staff in both Lebanon and Israel were safe and accounted for.
Maersk’s office in Lebanon is located in Beirut and employs 21 people.
Saudi Arabia reportedly said oil prices could drop to $50 per barrel
Oil prices may be up today, but Saudi Arabia is warning that prices could fall as low as $50 per barrel, the Wall Street Journal reports.
The reported comments came ahead of an online meeting on Wednesday of the Organization of the Petroleum Exporting Countries and allies, an oil cartel described as Opec+ that controls a large proportion of global supplies.
Before the escalation of the Middle Eastern crisis, oil prices had been on a downward path for weeks – and prices are well below the $90 per barrel level a year ago despite the conflict.
The Saudi energy minister warned other Opec+ members that they should comply with production cuts to avoid further price drops. The Wall Street Journal reported:
During a conference call last week, Prince Abdulaziz bin Salman, the oil minister of OPEC kingmaker Saudi Arabia, warned fellow producers prices could drop to $50 a barrel if they don’t comply with agreed production cuts, according to OPEC delegates who attended the call.
Falling oil prices would help consumers after several years of inflation – and it could help Kamala Harris in her effort to defeat Donald Trump in the US presidential election. However, oil producers – with Saudi Arabia as the biggest – want to sustain prices.
AO World agrees £10m takeover of phone reseller musicMagpie (after £200m listing)
One share price that has surged on Wednesday is that of musicMagpie. The second-hand smartphone seller is up 48% after retailer AO World agreed a takeover.
But it is hardly a happy ending for musicMagpie, which started out as a reseller of CDs and DVDs. It listed shares in 2021 with a heady £200m+ valuation (netting chief executive and co-founder Steve Oliver £12m in the process). But the 9.07p-per-share takeover values the company at only £10m three years later.
As any buyer of second-hand electronics knows, you have to be careful what you pay for. Investors in musicMagpie bought in during the coronavirus pandemic boom in tech sales. Shortages of computer chips meant that electronic devices were hard to come by, which helped resellers.
However, that boom had petered out by early 2022, and musicMagpie’s share price slumped as it turned lossmaking.
It has had some interest since, notably with BT Group last year considered a bid to complement its EE mobile network business, which also sells electronics. But its share price was at 5.75p on Tuesday before the takeover was announced – 97% down from the heights above £2 in April 2021.
The directors of musicMagpie unanimously backed the takeover.
John Roberts, AO’s chief executive, said:
To achieve our strategic ambition of becoming the destination for electricals, it is crucial for AO to enhance its consumer tech offering. A top-tier trade-in service will be essential, and musicMagpie represents a significant enabler in unlocking value through our reverse supply chain.
JD Sports' UK business struggles with Red Sea disruption and wet weather
The biggest share price drop on the FTSE 100 this morning is trainer and clothing retailer JD Sports. It is down by 3.6% on Wednesday morning.
UK business has been hit by falling sales after disruption in the Red Sea stalled deliveries and the cold wet spring reduced demand for camping kit and clothing.
The retail group, which owns Millets and Blacks in the UK, said sales at the outdoor kit chain were down 5.3% in the six months to 3 August as “key product lines” had been delayed by Houthi attacks off Yemen delaying or rerouting shipping and the early date of Easter fell outside the camping season for the first time since 2018.
It said poor weather compounded the issue, reducing demand for seasonal outdoor living product such as tents and camping equipment.
The chilly wet weather also hit the group’s main JD sportswear chain in the UK where sales at established stores were down 4.6% in what the group described as a “challenging and often volatile UK market”.
JD said discounting in the market had surged after “unfavourable spring and early summer weather conditions, dampened footfall and full price demand for seasonal [clothing]”.
Updated
Oil prices have bumped up further as European traders switch on – both Brent and West Texas Intermediate are up by more than 2% now.
That has helped oil companies. BP and Shell are among the top gainers on London’s FTSE 100 index, thanks to higher oil prices. They rose by 2% and 1.9% respectively.
TotalEnergies, France’s oil supermajor, rose by 2.1%, while Italy’s Eni gained 1.3%.
Updated
European stock markets have gained ground on Wednesday morning – suggesting that the selloff in response to the Middle Eastern conflicts is so far limited to oil prices.
Here are the opening stock market index snaps from Reuters:
EUROPE’S STOXX 600 UP 0.2%
BRITAIN’S FTSE 100 UP 0.3%
GERMANY’S DAX FLAT
FRANCE’S CAC 40 UP 0.3%
SPAIN’S IBEX DOWN 0.3%
Oil prices rise as investors await Israeli response to Iran missile attacks
Good morning, and welcome to our live coverage of business, economics and financial markets.
Oil prices rose on Wednesday morning as investors around the world weighed the risk of threats to energy supplies after Iran’s missile attack on Israel threatened to escalate the Middle East conflict.
The price of Brent crude oil futures, the North Sea benchmark, rose by 1.6% to $74.75, while the price of futures for its North American counterpart, West Texas Intermediate, rose by 1.7% to $70.98.
Prices surged on Tuesday as reports of Iran’s imminent attack emerged. The attack was a response to Israel’s killing last week of Sayyed Hassan Nasrallah, the leader of Lebanon’s powerful militant group, Hezbollah. Hezbollah is widely seen as an Iranian proxy, and Israeli troops have moved into Lebanon.
Brent crude prices rose by 3.8%, after the largest intra-day move since April 2023, according to analysts led by Jim Reid at Deutsche Bank. They wrote:
There were some indications that escalation risks might be higher this time around. The Pentagon said that this attack used around twice as many ballistic missiles as the one in April, while Iranian commentary was more ambiguous on whether the attack would be one-off.
Most Asian stock markets outside China slumped on Wednesday morning, following the lead of US indices the night before. Japan’s Nikkei slumped by 2.2%, South Korea’s Kospi fell by 0.6%, and Australia’s ASX 200 index fell by 0.1%.
However, Hong Kong’s stock market soared by 6% amid Beijing’s stimulus, which has pushed up Chinese stocks. The mainland Chinese stock markets were closed for the Golden Week holiday.
Investors are now considering whether Israel will respond directly to Iran, while Israeli forces continued to strike Beirut, Lebanon’s capital. Israel has also been fighting in Gaza, to its west, for almost a year after the attacks by Hamas on 7 October.
Mohit Kumar, chief economist for Europe at Jefferies, an investment bank, said:
Risk off dominated the markets on escalation in the Middle East. Oil moved higher on geopolitical risks. Markets did stabilise after the initial risk off and investors now wait for the response from Israel.
The agenda
10am BST: Eurozone unemployment rate (August; previous: 6.4%; consensus: 6.4%)
1:15pm BST: US ADP employment change (September; prev.: 99,000; cons.: 120,000)
