Revolut is regulated as an EMD, so they don’t live in some unregulated orbit, could the FCA, BOE and PRA have more ways in via giving them a banking license? maybe, but the bar is set very high for that license, because it’s so consequential to the wider economy, and having your auditors say, they can’t be sure of the numbers they are right in an annual report is pretty concerning.
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It’s probably an ongoing conversation about how to handle in the FCA.
I imagine it’s a tension between political masters (the Chancellor’s championing of Revolut will have been unhelpful from a regulatory perspective), the desire to hold a strong line, and (like the Guardian article says) the ability to get over the bonnet if you grant them even a limited licence.
From the very limited information we have, I’d be inclined to grant a very limited licence, hold them there for an extended period until they’ve either totally cleaned up their act or the regulator can manage their exit from the UK market.
Interesting.
What makes you feel this would be an outcome? Surely the amount of jobs and potential revenue to come of a licence, and in fact it’s a successful, established entity created within the UK, they’d surely be more inclined to keep them.
Not arguing by the way, just curious to know the thoughts behind it.
I sense, for some reason, you’re against Revolut and their success.
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I’m very much here for success stories. I’ve never been a Revolut champion, though, because the company’s culture and values seem to run counter to mine.
But please don’t confuse not championing with being against someone or something. I do try to be constructively critical (something that I remember you pulling me up on about Monzo previously) - not to bring down but to improve. A strong, well managed, Revolut will be part of the tide that lifts all ships.
I’ll come back to this 
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Just casually checking out the app on some transactions.
Made some time ago using Visa card.
Tapped into it and it automatically updated to match the more recent transactions.
Also then realised I could tap the logo and then choose options as below:
Tapping logo/location doesn’t take you to a page to choose or recommend. But tapping the name box and continue then lets you enter a recommended name.
Wonder how long (if at all) does it take for things to update. 
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is now.
Let me prefix this by saying that I have no idea what’s going on with Revolut apart from what I’ve read online.
The reporting around their annual report and accounts gives some troubling details, though. @Sachaz’s post is useful context:
The fundamental point here is that banks need to be held to certain standards. And if they are routinely unable to meet them then there might be questions about whether they should continue to offer their services. It does strike me that not being able to “rely on Revolut’s IT systems and controls” is quite a big concern.
Of course, that doesn’t inevitably mean one strike and you’re out. And I’m in no way suggesting that the regulator would seek to wind down Rev’s UK operations because of this.
What I am saying is that, in the spirit of the Guardian article linked above, the regulator might feel that Rev is big enough and systemic enough to pose a risk, and that having it properly regulated as a bank would help them mitigate that risk.
What I was saying in my wider quote (“I’d be inclined to grant a very limited licence, hold them there for an extended period until they’ve either totally cleaned up their act or the regulator can manage their exit from the UK market”) was that, in the unlikely event that I became the One True Regulator, then I’d be inclined to look for levers to help Rev improve its processes. So making the award of a full licence dependent on fixing these sort of issues.
My “exit from the UK market” comment was because of the logical “so what if they don’t?” question. If the regulator thinks that Revolut poses a systemic risk (and it may or may not think that) AND it hasn’t succeeded in having them clean up their act with a combination of stick and carrot then the only logical conclusion is that you need to do something to make sure that that company no longer poses a systemic risk. But of course my preference would be that it improves its processes, becomes a UK bank and offers effective competition to Monzling (and the high street banks).
I think this is confuse slightly the role of the Government and the role of the Regulator.
The Regulator will have very strict terms of reference and things that they can take into account. The Government will be very worried about taxation revenue, jobs, creation of a British champion etc (but probably also national security concerns, given that some newspapers have suggested that there’s a question mark over Nik’s Russian ancestry). But the regulator shouldn’t be concerned about much or any of that. They’ll be making sure that the banking system works and companies behave properly.
I’d normally strongly agree, but I don’t think this is an adaptation issue - it’s a simple fail of controls. I don’t think that a new banking model means that you’re unable to have robust systems that show where you make your money, for example, which is what seems to have happened in this case:
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It could just be BDO, who have been criticised for poor reporting in the past, who are struggling to account everything.
There seems to be mixed lines of amounts and whether it’s been verified by another company based on the comment above saying it couldn’t be verified “independently”, so has another company done this for them?
Revolut had to spell out certain parts to help BDO understand? Obviously they can’t take their word because it may be assumed to hinder the audit process.
Whilst I’m not involved in anything close in terms of audit, I’m more inclined to believe BDO are just poor at that they do based on previous comments.
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Didnt BDO get hauled up before for their poor auditing of Rev if I recall?
I cant remember exactly but if thats the case then to me it seems more like BDO are now less likely to just believe Rev when they say “we haz all da monez” if they got in trouble for poor auditing and verification in the past.
If BDO is still at fault why are Rev using them? I dont expect them to do use them for their next audit though after the warning.
I personally find the reporting to be very concerning especially when crypto is accounting for so much revenue and they cant say where it came from, this smells terrible and, dare I say it, like a scam. I mean if this was a crypto exchange audit saying this I would never hold anything with them. Would you?
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In terms of the audit, it surely can’t be completed and signed off until the funds are accounted for, however long that takes?
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Normally thats the case, unless as BDO did, the auditor affixes a warning because there is no way to account for the money due to poor accounting and IT practices. That is a terrible and scary thing to see about a crypto exchange and would make me leave but for a company trying to be a bank, that is very concerning.
I do hope Rev get it sorted for the next one, really the fact crypto has had lots of issues over the past year with collapses of exchanges who seemed stable and funded and then you have Rev with a huge amount of their revenue coming from crypto all while the auditor has to warning it cant verify the transactions or amounts seems pretty off.
It may be Rev has just had a terrible system in place and they fix it and the next books are able to be audited properly, or it could be far far worse. /shudders in Bankman-fried
All while Rev wants me to put my pay and money into an unlicensed bank… I don’t know why I would risk it even if the risk is minimal with these issues hanging over them.
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This is spot on in terms of my reading of the situation with Revolut too.
Fundamentally, the scrutiny is higher from both Regulators and Auditors in the wake of many recent high profile audit scandals. Namely, Wirecard springs to mind w.r.t. Fintech parallels and it would be an unconscionable own goal for the U.K. regulators/BDO to not learn from the mistakes of the German regulator/EY in its handing of the rise/fall of Wirecard.
Revolut will not be awarded a banking licence until BDO and the regulators are at the very least satisfied that its 2021 internal control deficiencies are indeed remediated in following years of account as Revolut claim they are.
It’s this simple imho. Auditors do not provide absolute assurance (it’s prohibitively expensive and arguably impossible); they provide only reasonable assurance to stakeholders that what is financial reported isn’t materially different than disclosed. Hence, why effectively operating internal controls are a must for an organisation like Revolut trying to enter/disrupt a highly regulated, public banking scene.
I’d be surprised if they get a U.K. banking licence in 2023.
Solid documentary to watch:
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What Revolut want to happen and what will happen are two different things of course.
I suspect they will, but only because the FCA wants to stop the binfire that an EMI which suddenly loses “profit” due to a Crypto Crash might cause
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To protect customers money you mean?
Aren’t they better off leaving it as a EMI in that situation to remove the obligation to pay out to every customer in full?
Customers signing up to Revolut know what they are entering based on the terms available when applying for an account. IE no FSCS protection.
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Not that as such - more having to deal with the fallout and collapse of a sizeable EMI might be harder to do whereas as a regulated bank they probably have protocol and steps in place already.
This is a total guess based on reading the articles and some assumptions. I have no idea if they will/won’t go bust/get a licence of course!
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I’d have thought it’s much less stress to manage as an EMI than it is a bank.
IE let them resolve it themselves and that’s the point of the EMI licence.
You could be right though.
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My working theory - and it is a theory is this:
- When the FCA setup the concept of EMI’s there were not too many of those and probably they wouldn’t get too big mainly due to acquisition,closure,buyout. So the controls and checks were lighter too.
And now we are at a stage where that’s not the case - so there’s a decision to be made.
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Do Rev actually say on the sign up “warning: we have no FSCS protection and we are NOT a bank” or do they say we are an e-money institute and in the terms it mentions not FSCS protected hidden away.
I bet the sign up flow even tries to imply EMI means its ring fenced and safe, its not safe, its safer than it being in a Rev account.
I honestly would expect a large swathe of their customers dont have a clue.
I have never been a Rev customer, the lack of regulation, guarantee and license put me off signing up but that may change when they get a license.
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True.
I dont think it explains there’s no FSCS, however does explain how funds are safeguarded in other banks.
Doesn’t make it totally clear that if it does go to admin, their balances minus administration costs (or whatever) is the recovered, if anything is left.
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I think none of them make this bit clear
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Revolut, as an e-money institution (EMI), protects your money through “safeguarding”, which differs from how your money is protected by banks in the UK through the Financial Services Compensation Scheme (FSCS). It is important to know this difference and we have put together this blog on how your money is protected with Revolut through “safeguarding”, and not through FSCS.
In the UK, Revolut is not a bank but an e-money institution, authorised under the UK Electronic Money Regulations. This means, in particular, that FSCS protection does not apply to the e-money or payment services we provide.
The protection this provides means that if an e-money institution fails, there should be a pot of money (the safeguarding account) sufficient to pay all customers the money they are owed. These safeguarding accounts are protected by law from other creditors of a failed e-money institution making a claim against them. The only thing that can be paid from these safeguarding accounts, before the customers are paid back their e-money, is the cost of the receiver (the person who’s appointed to manage the closure of a failed company).
So, provided that it is compliant with the safeguarding laws, if an e-money institution goes out of business, customers should get most, if not all, of their money back. (Although, as explained, in some instances certain costs may be taken by the receiver of the firm.) The payout could also take longer than it would with a bank.
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