Revolut Faces Potential Setback as Bank of England May Reject Banking License Application
Revolut, the UK’s biggest fintech, had ambitious plans for this year that included obtaining its UK banking license. With 25 million customers and a valuation of $33 billion, Revolut hoped to expand its services into insured deposits and bank products such as mortgages and credit cards. However, recent reports suggest that the Bank of England is preparing to reject the company’s license application after a two-year process. A refusal could be detrimental to Revolut’s growth prospects at home and abroad, giving the company a red flag that would impact investor confidence and stifle expansion.
Revolut’s self-inflicted wounds
Stephen Kingsley, a seasoned non-executive director and chair of multiple audit committees at financial institutions, attributes the potential license rejection to Revolut’s “string of own goals.” While the pandemic and malaise in the banking sector have contributed to administrative delays and additional scrutiny, several of Revolut’s errors have been self-inflicted. Kingsley points to the company’s reaction to its finance report evaluated by the BDO auditor, which described IT deficiencies that could not verify three-quarters of its revenue. Revolut’s law firm challenged the auditor’s report, interpreting it as an insult rather than a professional observation, likely affecting the regulator’s perception of the company’s supervision.
Problems with capital and organizational structure
In addition to these reservations about the audit report, Outward VC co-head Devin Kohli suggests that concerns about Revolut’s capital and organizational structure may also impact the license application. Kohli notes a series of executive departures since the start of the year, including the company’s CFO, group COO, and UK banking director. The Bank of England is likely to speculate about the reasons for this rotation, questioning why high-level executives cannot stay in their positions for an extended period.
Summary:
Revolut, the UK’s biggest fintech, had ambitious plans to obtain its UK banking license this year, allowing it to expand its offerings into insured deposits and bank products such as mortgages and credit cards. However, recent reports suggest that the Bank of England is preparing to reject the company’s license application, leaving investors and customers uncertain about its growth prospects. The potential rejection is due to Revolut’s “string of own goals,” including challenging an audit report that revealed IT deficiencies and a string of executive departures. The regulator is likely to view these actions as disrespectful and indicative of the company’s poor supervision, leaving Revolut with a “red flag” for its future expansion.
Additional piece:
Revolut’s potential license rejection highlights a common issue in the fintech industry: the tension between innovation and regulation. While many fintech companies offer innovative solutions to traditional banking practices, they often struggle to navigate regulatory hurdles. The banking sector is highly regulated, with strict requirements for capitalization, risk management, and compliance. Obtaining a banking license is a critical step for many fintech companies seeking to expand their offerings and compete with traditional banks.
However, meeting these regulatory requirements can be challenging for many fintech startups, which may lack the necessary resources and experience. Many fintech companies have faced setbacks in their bank license applications due to issues such as inadequate capitalization, poor risk management practices, and compliance deficiencies. These challenges can be exacerbated by a company’s rapid growth, which can stretch its resources and increase the potential for errors and oversight.
Despite these challenges, obtaining a banking license is essential for many fintech companies seeking to establish themselves as credible competitors in the banking sector. Banks have significant advantages over their non-bank peers, including access to insured deposits and regulatory protections. By obtaining a license, fintech companies can offer these services, expanding their customer base and revenue streams. Additionally, a banking license can enhance a company’s reputation and instill confidence in investors, customers, and regulators.
As fintech continues to disrupt the banking sector, understanding the regulatory environment will be critical for companies seeking to succeed in this space. While innovation is essential, it must be balanced with effective risk management and compliance practices to ensure a company’s long-term viability. By working closely with regulators and addressing potential concerns proactively, fintech companies can obtain the necessary licenses and establish themselves as reliable partners in the banking industry.
Summary:
Revolut’s potential license rejection highlights the challenges that many fintech companies face when seeking to obtain a banking license. Regulations present significant hurdles for companies seeking to expand their offerings into bank products, including strict requirements for capitalization, risk management, and compliance. Despite these challenges, obtaining a banking license is crucial for many fintech companies seeking to establish themselves as credible competitors in the banking sector. By addressing regulatory concerns proactively and working closely with regulators, fintech companies can obtain licenses and expand their customer base and revenue streams. Balancing innovation with effective risk management and compliance practices is essential for a company’s long-term viability.
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this year was It’s supposed to be a huge victory lap for Revolut, the UK’s biggest fintech. The firm touted its first year of profitability in March, having tripled its profits year-over-year, and continues to hire at a breakneck pace, despite pessimism elsewhere in the sector
This was also the year that Revolut hoped to obtain its UK banking license. Since it began offering prepaid cards in 2015, the company has amassed 25 million customers and moved into services from trading cryptocurrencies to international money transfers. It is now valued at $33 billion. Obtaining the license would allow it to expand further, into insured deposits and lucrative loan products such as mortgages and credit cards; in short, behave like a real bank.
The latest indication, however, is that Revolut will be lost. On May 18, The Telegraph reported that the Bank of England is preparing to reject the company’s license application, ending a process that has already taken more than two years.
The Bank of England, which declined to comment, has not issued a formal decision. But a denial, says Stephen Kingsley, a seasoned non-executive director and chair of multiple audit committees at financial institutions, would give Revolut a “red flag” that would hurt its growth prospects at home and elsewhere. “It’s pretty serious,” he says.
A refusal, should one eventually come, is likely the consequence of an unflattering “string of own goals” scored by Revolut, says Kingsley. In the context of the pandemic and now malaise in the banking sectorthe app was bound to face administrative delays and additional scrutiny, but several of Revolut’s injuries have been self-inflicted, he says.
The company drew criticism for its latest finance, evaluated by the BDO auditor. When the report arrived on March 1, five months late, it described deficiencies in the company’s IT practices that meant three-quarters of its revenue (£476.9 million ($591.6 million)) ) could not be verified with complete satisfaction.
Although far from ideal, neither an audit score nor a reporting delay are reasons in themselves to deny a banking license application, Kingsley says. But Revolut’s reaction to the report may have given the regulator pause. The company made a mistake, he says, by ordering his law firm to explain the findings in a way that “amounted to challenging the auditor’s report”, a move likely to be interpreted by the Bank of England as disrespect for supervision. “It’s unheard of,” says Kingsley. “The problem is that Revolut didn’t take [the report] oh really. He took resentment; as if it were an insult rather than a professional observation.”
Adding to reservations related to the audit report, Devin Kohli, co-head of fintech-focused venture capital firm Outward VC, is likely to be concerns about Revolut’s capital and organizational structure.
A series of executive departures since the start of the year, including the company’s chief financial officer, group chief operating officer and UK banking director, will not have helped, he says, leaving the Bank of England to speculate. about the cause of this. Rotation. “There’s a concern about why people can’t stay in high-level positions for an extended period of time,” Kohli says.
https://www.wired.com/story/fintech-unicorn-revolut-needs-a-plan-b/
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