Starling Bank Limited · DRN-6200744

The complaint A company, which I will refer to as G, complains that Starling Bank Limited won’t reimburse funds it lost to fraud. Mr M, who is a director of G, brings the complaint on G’s behalf through a professional representative. What happened As the circumstances of this complaint are well-known to both parties, I have summarised them briefly below. In 2023, Mr M met the director of a business I will refer to as ‘Company X’. He was told about an investment opportunity whereby short-term investment loans provided to Company X, to assist with its expansion, would be rewarded with returns over a fixed period. Mr M agreed to invest and on 7 June 2024 made a payment toward that investment from G’s account held with Starling for £150,000. G saw one return paid on the investment in July 2024 for £2,500. But no further returns were paid as promised. Company X entered into administration and information subsequently came to light that led Mr M to believe Company X’s representatives were operating a fraudulent investment scheme. Mr M’s representative raised a claim against Starling on G’s behalf, asking that it reimburse the loss suffered under the terms of the CRM Code. But after considering the evidence provided, Starling found that it couldn’t provide an answer on the claim due to the scale of the assessment and the involvement of law enforcement. Mr M’s representative referred the complaint to our service for an independent review. An Investigator considered the evidence and testimony provided by both parties and concluded that Starling ought to have reimbursed G its loss in full. Starling disagreed with that assessment, as it didn’t think it was appropriate to make a determination about the matter being a fraud or not until the law enforcement investigation had concluded. It also argued that Mr M’s liability ought to be reconsidered due to the lack of due diligence carried out regarding the investment. As Starling disagreed, the matter has now been passed to me to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. In deciding what’s fair and reasonable in all the circumstances of a complaint, I’m required to take into account relevant: law and regulations; regulators’ rules, guidance and standards; codes of practice; and, where appropriate, what I consider to have been good industry

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practice at the time. There is no dispute here that Mr M authorised the transaction in question on behalf of G. And the starting position in law is that G will be held liable for the transaction authorised in the first instance. That is due to Starling’s primary obligation to process payments in line with its customer’s instructions, as set out in the Payment Services Regulations 2017. However, Starling was a signatory to the Lending Standards Board’s Contingent Reimbursement Model (the CRM Code) at the time the payment was made. Under that Code, firms were expected to reimburse customers who fall victim to fraud, subject to a number of conditions and exceptions. However, the CRM Code is only relevant if I’m persuaded G’s loss was as a result of fraud. The Code specifically doesn’t cover certain types of disputes. It says: “This Code does not apply to…private civil disputes, such as where a Customer has paid a legitimate supplier for goods, services, or digital content but has not received them, they are defective in some way, or the Customer is otherwise dissatisfied with the supplier”. Starling has set out in its submissions that it seeks to rely on the outcome of a police investigation into the investment scheme’s operators before deciding whether G has in fact been defrauded here. It claims that the evidence is currently too ambiguous regarding Company X’s intentions when taking payment specifically from G. The CRM Code does have a provision that allows a signatory to wait for the outcome of an investigation by a statutory body before making a decision on a claim—albeit Starling has not explicitly cited this clause in its submissions. There may be circumstances and cases where it’s appropriate to wait for the outcome of external investigations and/or related court cases. But that isn’t necessarily so in every case, as it may be possible to reach conclusions on the main issues on the basis of evidence already available. And it may be that the investigations or proceedings aren’t looking at quite the same issues, or doing so in the most helpful way. I’m conscious, for example, that any criminal proceedings that may ultimately take place might concern charges that don’t have much bearing on the issues in this complaint; and, even if the prosecution were relevant, any outcome other than a conviction might be of little help in resolving this complaint because the Crown would have to satisfy a higher standard of proof (beyond reasonable doubt) than I’m required to apply, which is on the balance of probabilities. To determine G’s complaint, I have to ask myself whether, on the balance of probabilities, the available evidence indicates that it’s more likely than not that G’s loss was the result of a fraud rather than a failed investment. But I wouldn’t proceed to that determination if I consider fairness to the parties demands that I delay doing so. I’m aware that G first raised its claim with Starling in February 2025, and I need to bear in mind that this service exists for the purpose of resolving complaints quickly and with minimum formality. With that in mind, I don’t think delaying giving G an answer for an unspecified length of time would be appropriate unless truly justified. And, as a general rule, I’d not be inclined to think it fair to the parties to a complaint to put off my decision unless, bearing in mind the evidence already available to me, a postponement is likely to help significantly when it comes to deciding the issues.

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I’m aware the above process might result in some recoveries for Company X’s investors; in order to avoid the risk of double recovery, I think Starling would be entitled to take, if it wishes, an assignment of the rights to all future distributions to G under such processes in respect of this investment before paying anything I might award to it on this complaint. For reasons I’ll explain in more detail below, I don’t think it’s necessary to wait for the outcome of the police investigation for me fairly to reach a decision on whether Starling should reimburse G under the provisions of the CRM Code. I’m satisfied there is already convincing evidence to demonstrate, on the balance of probabilities, that those who invested with Company X were dishonestly deceived about the purpose of the payments they were making, and that G’s loss was likely the result of fraud. Our Investigator has already set out in detail in their view why our service—having considered the evidence Mr M’s representative has provided, and that of third parties—has concluded that Company X’s representatives were likely operating a fraudulent scheme. I therefore see little use in repeating this evidence again in similar detail. I’ve therefore focused on what I consider to be the key points when deciding this complaint. I’ll summarise them as follows: • The administrators for Company X have confirmed that the value of the contract Mr M believed he was providing investment toward was worth £4.4 million. However, when going into administration Company X owed investors £25.3 million, which evidences that it raised far more from investors than it needed. Considering Mr M paid toward his investment at the end of the 2021-2024 contract, it’s more likely that Mr M’s funds were obtained at a point that Company X no longer required any investment for that project. • Our service has reviewed the account to which G’s funds were received, along with another account linked to Company X. The information held within these accounts supports the administrators’ observations that there is Ponzi scheme-like activity and that a vast amount of money was spent on personal expenditure and sponsorship payments that exceed the value of the contract relied upon for the investment. • There have been arrests carried out on directors of Company X, relating to the fraud alleged. • While not relevant in Mr M’s case, we have seen evidence that representatives of Company X fabricated a credit insurance policy to persuade investors their funds were protected. Further proving that representatives of Company X were acting dishonestly to obtain investments. I’m persuaded that this indicates the investment opportunity was likely misrepresented dishonestly, and investor funds were likely misappropriated and not spent on their intended purpose. That being more so in this case considering that this was one of the later investments we have seen. Starling has suggested in its response to our Investigator’s view that there is a possibility that the company decided to defraud investors after initially operating legitimately, and there is no way of knowing at which point any intention to defraud began. I do understand the points raised by Starling, but these are merely speculative rather than based on evidence. The determination our service has reached that this is more likely a fraud than civil dispute is however based upon multiple evidence points that we have set out in detail. And this evidence is specific to the circumstances of G’s complaint, as even were representatives of Company X only dishonest from a later date, G’s investment was made only three months prior to the appointment of administrators. Starling has also argued that it wishes to see how G’s funds were utilised in the accounts of

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Company X as many of the points raised in our Investigator’s assessment refers to investors as a whole. As I’m sure Starling can understand, accounts containing considerable transactions and activity complicates the ability to attribute certain payments in with certain payments out: it is simply not possible to make such distinctions. It is therefore unreasonable to expect this to be accurately assessed. I therefore find it reasonable that the misappropriation of funds be viewed collectively rather than individually. Overall, for the reasons I have given above, and taking into account the detailed points raised by our Investigator in their view regarding Company X’s illicit activities, I find that it is more likely than not that G’s loss has been as a result of fraud. It therefore follows that the matter falls within the scope of the CRM Code. The starting position under the terms of the CRM Code is that signatories are expected to reimburse a customer who has lost money to fraud unless it can demonstrate a valid exception applies. Those exceptions include, but are not limited to: • the customer ignored an effective warning by failing to take appropriate action in response to that warning. • the customer made the payment without a reasonable basis for believing that the payment was for genuine goods/services and/or the person or business with whom they transacted was legitimate. Starling’s primary argument in respect of the exceptions to reimbursement is that Mr M did not carry out sufficient checks to satisfy himself that investment opportunity was legitimate. However, I respectfully disagree with that assessment. Firstly, I have noted from the evidence available that Mr M was introduced to the investment opportunity after meeting with the director of Company X in person while on a trip. Company X at the time was also a well-established business, with a formal registration on Companies House being held since 2000. Furthermore, Mr M had been provided reassurance from several other people he was familiar with that they had already invested in Company X and had successfully seen returns on their investment; some of which had entered into agreements long before Mr M’s decision to do so. Mr M had also carried out research on Company X which revealed nothing of concern. He’d also reviewed a contract that Company X had with a third-party business—this being pertinent to the project he believed he was investing in—and confirmed that this was a legitimate contract with a reputable business. Taking the above into account, I am unsure what more Mr M could have done to ensure that Company X and the investment opportunity presented to him were legitimate. I therefore find that his basis of belief that they were legitimate was a reasonable one. Starling has asserted in its submissions following our Investigator’s view that Mr M ought to have searched the Financial Conduct Authority (FCA) register to ensure he was dealing with a regulated firm. But Company X wasn’t required to seek authorisation from the FCA when raising capital from private investors or when making offers to specific investors. There were also no warnings present on the FCA website regarding Company X at the time it was seeking investment. So, I do not see how a search of the FCA register would have altered Mr M’s basis of belief that the company or opportunity were legitimate. I have also noted that Starling have given mention to the return of rate offered in this case being unrealistic. While I agree that the rate of return offered in this case was high when

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comparing it against average return rates, I’m not persuaded it was unrealistic, as this rate is indeed achievable and not unheard of for investments of this nature. Overall, for the reasons I have given above I don’t agree with Starling’s assessment that Mr M made the payment without a reasonable basis for believing that it was legitimate. I therefore do not find it fair that it relies upon this exception to reimbursement. Starling has also briefly touched upon a warning it provided Mr M when he was processing the payment from G’s account. This warning was a stock warning asking Mr M if the payment could be part of a scam. It instructs him to verify who he is sending the payment to and informs him that he may not be able to recover his funds. Considering that this was not relevant or specific to the circumstances Mr M found himself in, I’m not persuaded that this could be considered an ‘effective warning’ as defined within the CRM Code. As no other exception to reimbursement has been evidenced, it follows that G is entitled to a full reimbursement under the terms of the CRM Code. Putting things right Starling should now go ahead and reimburse G it’s remaining loss, calculated to be £147,500. It should also pay G 8% simple annual interest on this amount from the date it ought to have responded to his claim under the terms of the CRM Code, to the date it settles. That’s to reflect the deprivation of those funds from the point it ought to have reimbursed G. My final decision For the reasons I have given above, I uphold this complaint and direct Starling Bank Limited to settle this complaint as I have indicated above. Under the rules of the Financial Ombudsman Service, I’m required to ask G to accept or reject my decision before 17 April 2026. Stephen Westlake Ombudsman

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