Revolut was everywhere during the recent UK political party conference season. Fintech company Revolut co-sponsored Labour’s opening reception in early this month, and also hosted events at Conservatives’ convention a week earlier.
The company that provides payments to crypto said its presence at the conferences had “nothing whatsoever” to do with its long-standing bid, for a UK bank licence. Nik Storonsky has been lobbying the Prime Minister on this issue.
The support of any political party could be invaluable in obtaining the license that Revolut requires to boost growth on its home market, and instill confidence in overseas regulators. This prize is still elusive almost eight months after a senior executive of the company promised it would arrive “anyday now”.
While the recent Resolution will ease some regulatory concerns, Revolut must still overcome several hurdles to be approved as a UK Bank, according to those familiar with the situation.
The UK regulators say that banking licences are usually granted within 12 month of the application. Former insiders and analysts said that Revolut’s application has been sitting on the regulators’ desks for more than a year.
Revolut has close to 8mn UK customers, which is more than any of the 36 lenders approved by the Prudential Regulating Authority of the Bank of England and the Financial Conduct Authority since 2013. That size means “it would be attracting senior attention” within the regulators, said Gavin Stewart, a former FCA official who is now a regulatory consultant. “That will effectively double [officials’] workload: everyone will want to chip in.”
Revolut’s application was hampered by many factors, including the fear of a bank that would quickly take over a large part of the UK retail banking market. This is according to insiders from the fintech as well as others who are familiar with the troubled regulatory journey.
Revolut has recently acknowledged that it will be late in releasing its 2022 accounts.
Former insiders said that Revolut did not consider it a “big problem” when the auditors told them that they couldn’t properly apportion the company revenue for 2021. They added that this was partly because Revolut had built its own accounting software instead of buying one like most companies.
Two people familiar with the discussions say that regulators have repeatedly expressed concern about Revolut’s public denial of the issue. Revolut’s aggressive stance was criticized by the fintech board for its brash attitude. Two people with knowledge of the situation say that regulators have criticized the fintech for its latest delays in recent weeks. The company also assured regulators of a quick completion.
Revolut refused to comment on specifics about its discussions with the PRA or FCA. “We work with regulators all over the world. . . Revolut holds over 70 licenses in a variety of financial services,” stated the fintech. The Bank of Lithuania granted the fintech an EU banking license in 2021.
The FCA and PRA refused to comment on this issue or any other aspect of Revolut’s dealings.
Revolut has had issues beyond its accounts. A flaw in the payment system of Revolut allowed US criminals to steal over $20mn as early as 2022. Fintechs are accused of allowing up to £1.7mn in a recent case to be paid into accounts flagged by the UK National Crime Agency.
There are cases in every bank that fall through the cracks. Stewart said that regulators take a strict approach towards banks during the application process because “once a license is granted, it is much more difficult to remove it”.
Revolut has been unable to gain the trust of regulators who prefer stable management teams. Five senior UK executives have left the company in the two-and-a-half years since its first application to obtain a UK license, including James Radford, its UK banking head.
The FCA conducts exit interviews with departing employees. It oversees Revolut’s UK payments business, and has ordered a culture review in 2021. The FCA has received negative feedback from several former staffers. Revolut reported that 80 percent of its exit interviews conducted this year “rated the experience they had at Revolut positively.”
Two former insiders of Revolut who were involved in regulatory applications have left the company, partly because they did not like how they were required to present their information to officials.
According to those familiar with the discussion, supervisors also questioned Revolut’s governance arrangements and the level at which the board challenged Storonsky.
Two people familiar with this request say that the PRA told Revolut they wanted to expand the board, ideally by adding directors with more banking and technology expertise who could challenge executives about operational and compliance questions.
Revolut will soon add two non-executive directors to its board, bringing the total to seven. The chief executive officer and chief technology officers are also expected to be added, according to the sources. The current non-executive directorship includes the chair, Martin Gilbert who co-founded Aberdeen Asset Management and Michael Sherwood a former Goldman Sachs Europe co-head.
Regulators had previously raised concerns over the board’s capability to challenge management given the wealth certain non-executive Directors had amassed through Revolut shares. These were mostly granted prior to a 2021 financing round, which then increased the value of the company fivefold. According to sources familiar with the situation, in response to these concerns, Revolut remunerated board members using cash instead of shares.
Insiders have described instances where Storonsky’s public announcements caught Revolut’s board off guard. Former employees claim that the fintech’s 39-year old co-founder, who is Russian by birth, has a “big voice” in the way Revolut runs.
A spate of bank failures in March made regulators more cautious, and soaring rates of interest and slowing economies have depressed the valuations of fintechs, making banking supervisors worry about raising capital to cover losses.
Storonsky, who said that he “would love to have” the license that Storonsky referred to, is a good example. . . As a Christmas gift” last year, it might not be ready for this festive season.