Starling Bank's annual profit has fallen by a quarter.

This comes after the bank was fined for weak financial crime controls and set aside cash for Covid bounceback loan issues.

The bank, which has an office in Southampton, reported a pre-tax profit of £223 million for 2024, a 26 per cent decrease from the previous year's £301 million.

This marks the company's fourth consecutive year of profitability since its launch a decade ago.

The profit drop was partly due to a £29 million fine from the UK's Financial Conduct Authority (FCA) last year.

The FCA criticised the bank's financial crime screenings as "shockingly lax," making the system "wide open to criminals and those subject to sanctions."

The bank was also found to have repeatedly breached a requirement not to open accounts for high-risk customers.

Starling said it has learned from the investigation and has built a stronger framework, but still faces some restrictions regarding banking with higher-risk customers.

Profits were also affected by the bank setting aside £28.2 million to cover a group of bounceback loans which "potentially did not comply with a guarantee requirement."

Starling offered these loans to struggling businesses during the Covid pandemic as part of the Government-backed lending scheme.

The bank agreed to remove the Government guarantee on the group of loans that had potential issues.

Despite the profit decrease, Starling's revenues rose to £714 million, up from £682 million in 2023, with customer deposits exceeding £12 billion.

The bank also highlighted the growth of its banking software platform, Engine, after increased investment and signing Salt Bank in Romania and AMP Bank in Australia as its first two customers.

The London-based bank, which also has UK offices in Cardiff, Manchester, and Southampton, hired about 3,940 people on average last year – around 700 more than in 2023.

This increased staff costs by nearly a third year-on-year, while marketing spending was reduced as bosses focused investment on financial crime controls.

Chief executive Raman Bhatia said: "In the last year we demonstrated our commitment to addressing legacy matters, investing in our people and capabilities so we now move forward from a position of strength."