Starling Bank Limited · DRN-5865818

The complaint A limited company, which I’ll refer to as ‘S’, complains that Starling Bank Limited hasn’t reimbursed the money it lost to an authorised push payment (‘APP’) scam. Mr P, a director of S, has brought the complaint on S’s behalf. What happened Mr P told us he began seeing adverts for social housing investments around July 2024. He understood the investments were ‘government backed’ and offered guaranteed returns, and involved renovating properties into affordable social housing, which would be leased to the government to house vulnerable people. Having conducted some research, Mr P decided to invest in a company I’ll refer to as ‘C’. Acting on behalf of S, Mr P signed a joint venture agreement with C and made a £65,000 payment from S’s Starling account to C on 31 July 2024, understanding that he would receive quarterly returns of £9,000 over 36 months, starting in October 2024. S did not receive any returns. He also became aware of various issues with C, including a change of directors and a suggestion C was being bought out, and later that it was the subject of, what is now, an ongoing police investigation. Believing he’d been scammed, Mr P reported the scam to Starling on 30 October 2024 and asked for reimbursement of his losses. Starling considered S’s claim for reimbursement under the Lending Standards Board Contingent Reimbursement Model (‘CRM’) Code, but said it could not provide an outcome to the APP claim as there was an active police investigation into the activity of C. But it accepted that it had failed to communicate with Mr P in a timely manner, which it acknowledged had impacted his mental health, and so offered him £100 compensation. Unhappy with Starling’s refusal to reimburse his losses, Mr P referred S’s complaint to the Financial Ombudsman Service. Our Investigator was satisfied there was sufficient evidence to show S had fallen victim to an APP scam, as defined by the CRM Code, and didn’t think Starling could reasonably establish an exception to reimbursement applied. She therefore upheld the complaint and recommended Starling reimburse S’s full loss, plus 8% interest. She also recommended that it increase its compensation award to £300. Mr P accepted our Investigator’s recommendation. Starling disagreed. It considered Mr P, on behalf of S, had failed to carry out proportionate due diligence before investing a significant sum of money. It said: • Mr P relied heavily on information provided by C and hadn’t carried out sufficient independent research. • Mr P ought to have sought independent financial advice, especially as he’d not made an investment like this before. • S had entered into a high-risk, unregulated investment scheme, where there were inherently high risks. In these circumstances it should have carried out a higher level

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of due diligence before proceeding. • Mr P ought to have recognised that the promised returns – 22.05% per annum – were far outside what a typical legitimate investment could generate and ought to have been considered ‘too good to be true’. • The payment to C did not appear unusual or suspicious considering the usual account activity, and so Starling had no reason to intervene in the payment, beyond the questions and warnings it provided as part of its usual payment flow. In terms of the compensation offered, it said Starling had followed industry guidance on the case and so it could not avoid the delays Mr P encountered. As such, it didn’t consider further compensation was appropriate in this instance. Our Investigator considered Starling’s further comments but explained her view remained unchanged. Given the level of sophistication involved in the scam, she was not persuaded that Mr P could have uncovered the scam, or prevented S’s loss, had he carried out further due diligence or sought further advice. As Starling didn’t agree, the complaint was passed to me to decide. Before reaching this decision, I contacted Mr P and explained why I was unable to award the additional compensation our Investigator had recommended. I explained that I could only consider any impact Starling's handling of the claim, and subsequent complaint, had on S, a limited company. While I appreciate Mr P, as the director of S, experienced distress and inconvenience while pursuing the claim, this was in his personal capacity. A limited company cannot suffer distress or emotional impact, and while I could consider if S had suffered any inconvenience because of Starling's actions, I have not seen any evidence that is the case here. As such, I am unable to award compensation to S in relation to this complaint. Mr P acknowledged this and confirmed he understood why further compensation would not be payable. 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. Having done so, I’m upholding this complaint for largely the same reasons as our Investigator. I’ll explain why. Mr P authorised the disputed payment on S’s behalf. The starting position in law is that S is therefore liable for it. But Starling was a signatory to the CRM Code at the time, which required it to reimburse customers who had been the victims of APP scams in all but a limited number of circumstances. But the CRM code only applies if the definition of an APP scam is met. Here the relevant definition is set out in DS1(2)(a)(ii) of the Code: “…a transfer of funds…where (ii) The customer transferred funds to another person for what they believed were legitimate purposes but which were in fact fraudulent.” I note that Starling initially told S that it couldn’t provide an outcome to the claim due to the active police investigation. However, I also note that it did not dispute our Investigator’s findings that there was sufficient evidence to conclude C was operating a scam. Instead, Starling argued that S failed to take reasonable steps to protect itself from the scam.

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Starling therefore appears to be suggesting that S did not have a reasonable basis for belief when making the payment. If correct, and in the absence of any failing by Starling itself, this would mean S would not be entitled to reimbursement under the CRM Code. In any event, it does not now appear to be in dispute that S fell victim to an APP scam. But for the avoidance of doubt, and for the reasons set out in detail by our Investigator, I am also satisfied there is sufficient evidence that S’s payment to C meets the CRM Code’s definition of an APP scam. While a small amount of evidence suggests C may have been involved in property related investment activity, there is very little evidence that payments received were used for the benefit of investors. The evidence instead suggests they were used for the personal benefit of those operating C. The majority of the evidence indicates that C dishonestly misled investors about how their funds would be used. The beneficiary account statements also do not support that the incoming funds were sufficient to cover the payments made to investors. This suggests that investor “returns” were likely funded using deposits from other investors – consistent with a Ponzi style scheme. I am therefore satisfied that the disputed payment meets the CRM Code’s definition of an APP scam. The starting position under the CRM Code is that signatory firms should refund victims of APP scams – which I am satisfied S is. There are, however, exceptions that firms can rely on to decline reimbursement. Of relevance here is that firms can choose not to reimburse a customer if they ignored an “effective warning” during the payment journey, or if they made the payment without having a “reasonable basis for believing” that the payee was the person they were expecting to pay; the payment was for genuine goods or services; or the person or business with whom they transacted was legitimate. There are further exceptions within the CRM Code, but they aren’t relevant here. Did S have a reasonable basis for belief? For the reasons given by our Investigator, I’m persuaded that Mr P acting on S’s behalf had a reasonable basis for believing C offered a genuine investment opportunity. It’s evident that this was a highly sophisticated investment scam, which had numerous features that gave the impression of legitimacy. For example: • S received professional and convincing documentation, including a brochure, payment schedule, a joint-venture agreement and investment certificate – documents that one would reasonably expect to receive in connection with a genuine investment. • C operated out of two physical offices, which Mr P was invited to visit in person. • C claimed the scheme was government-backed and linked to several legitimate organisations. • C told investors that non-executive trustees, including regulated law firms, would guarantee returns should the investment fail. Mr P has also explained the checks he carried out before deciding to invest. He reviewed C’s website in detail, examined the documentation provided, and engaged in extensive discussions and message exchanges with two individuals he believed to be Sales Directors. He was shown news articles that appeared to support the legitimacy of the investment and

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read positive online reviews. I accept that the projected returns of 22% were high and arguably questionable. However, Mr P explained that C provided a convincing rationale based on secured government contracts and strong existing profit margins. While – with hindsight – these returns may appear ‘too good to be true’, I am satisfied that the combination of a sophisticated presentation, supporting documentation, and the explanations C offered would reasonably have outweighed concerns Mr P might otherwise have had. And while Starling recommended Mr P seek advice from an FCA regulated financial adviser as part of its payment flow process, this was not mandatory, nor were the consequences of declining to do so made clear. Starling has also suggested that Mr P could have taken additional due diligence steps. However, there were no obvious public concerns about C at the time. It is therefore unclear what additional checks would have revealed or what material effect they would have had in preventing the scam - something firms are expected to consider before seeking to rely on an exception. I also note that when S initially raised its claim - after the investment had failed and more information about C had come to light - Starling itself said that there was insufficient evidence to determine that C was operating a scam. Given that position, I consider it unreasonable to conclude that Mr P did not have a reasonable basis for believing the investment was legitimate at the time the payment was made. Overall, although further checks may have been possible, I am satisfied that Mr P’s belief in the investment’s legitimacy was reasonable at the time, and I am not persuaded that additional checks would have revealed cause for serious concern. Did Mr P ignore an effective warning? I’ve looked at the questions Starling asked Mr P and the warnings it gave him during the payment journey. Having done so, I’m not persuaded that an effective warning, which meets the criteria set out by the CRM Code, was given. While there were some relevant parts to the warning overall, I’m not persuaded it was sufficiently impactful or specific for it to be considered effective under the CRM Code. For example, the warning did not highlight some of the common features of investment scams, such as promotion on social media, or the involvement of third parties or unregulated brokers. The reference to safe account scams diminished the overall impact of the warning, as it was not relevant to specific risk identified, i.e. an investment scam. The consequences of proceeding could also have been more robust and impactful, for example it could have advised S that it would lose money if it was sent to a fraudster, rather than indicating it “might not get it back”. It follows, I’m not satisfied Starling provided an effective warning and so I can’t say Mr P on behalf of S ignored such a warning. Further, as set out by our Investigator, in the circumstances of this case, I’m also not persuaded that had an effective warning been given, that this would’ve had a material effect on preventing the APP scam. For the reasons I’ve explained above, I’m not persuaded Mr P had reason to believe C wasn’t a genuine investment opportunity at the time. I think it’s fair to say that a warning wouldn’t have had a material effect on preventing the scam, such was S’s reasonable belief that things were legitimate. So, I do not think an exception to reimbursement can be applied for this reason in any event. Given that I’m not satisfied that Starling can rely on an exception to reimbursement, S is

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entitled to be reimbursed in full under the provisions of the CRM Code. Putting things right • To put things right, Starling should refund S’s £65,000 payment to C. • Starling should also pay 8% simple interest per annum (less any tax properly deductible) on this amount, from 20 November 2024 (15 business days after S submitted its claim) until the date of settlement. This is to compensate S for the loss of use of these funds from the point at which it should have been refunded. • To avoid the risk of double recovery, Starling is entitled to take (if it wishes) an assignment of the rights to all future distributions in relation to the scam payment (such as from the police investigation and criminal proceedings), before paying the award. If Starling elects to take an assignment of rights before paying compensation, it must first provide a draft of the assignment to S for its consideration and agreement. My final decision For the reasons I’ve explained, my final decision is that I uphold this complaint and instruct Starling Bank Limited to put things right in the way I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask S to accept or reject my decision before 28 April 2026. Lisa De Noronha Ombudsman

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