Although its the UK’s most prominent fintech company, the Bank of England is expected to reject Revolut’s application for a banking licence after a two-year campaign. The Prudential Regulation Authority (PRA), the arm of the Bank of England that is responsible for licensing, informed the Treasury that it does not plan to approve the licence.
Senior sources close to Revolut said that the PRA asked the company to produce a set of accounts to simplify its share structure before a licence could be granted. Revolut’s auditor BDO, the UK’s fifth largest accounting firm, warned that company revenues “may be materially misstated” adding that it was unable to satisfy itself of the “completeness and occurrence” of revenues totalling £ 500 million, which amounted to three-quarters of the group’s total income for the year. As a result, Revolut received a statutory warning notice and has up to a month to challenge it.
Established in 2015 by Nikolay Storonsky and Vlad Yatsenko, Revolut expanded into Japan and the US. It has a workforce of 6000 and is headquartered in London.
Valued at US $33 billion, Revolut offers money transfers, stock trading and commodities, cryptocurrency and medical insurance. services.
Concerns over balance sheet
There are talks to salvage the licence application before it is turned down over concerns about Revolut’s balance sheet. Chancellor of the Exchequer Jeremy Hunt said that regulators must understand the wider responsibilities of economic growth and emerging technology. There are signs that the relationship between the UK Government and regulators has become somewhat hostile.
Revolut is a shining example from our world-beating fintech sector” Jeremy Hunt, Chancellor of the Exchequer
However despite all the challenges, Revolut continues to actively pursue a UK banking licence.
Revolut’s services will not be affected
Earlier this month, Revolut’s Chief Executive, Nik Storonsky, said that bureaucracy in the UK is making it an unattractive country for business. He spoke about the possibility of moving the company abroad if a UK banking licence was not granted.
Revolut’s existing services will not be affected if the application for a banking licence is rejected. However, the company would be unable to offer mortgages and loans to UK customers. In 2021 this segment accounted for more than 30 percent of the company’s revenues.
Customers’ money is always protected through safeguarding rules and this will not change.
Revolut already has a Lithuanian banking licence but securing a UK banking licence would be regarded as a major milestone for the company. It would be pivotal in winning other major markets that would include the US.
Top notch Board
Revolut has appointed former Chief Executive Officer of Aberdeen Asset Management, Martin Gilbert as chairman of the Board and former senior Goldman Sachs banker Michael Sherwood as a Board director. Recently though, a number of employees in senior positions including Chief Finance Officer Mikko Salovaara and head of UK business James Radford have tendered their resignation in recent weeks.
Revolut’s Board was said to be frustrated with the company’s response to the recently difficulties in acquiring a UK banking licence but some members believe that the statement to move the company abroad was an overreaction.
The City watchdog is also called for a review of the company’s culture last year and carried out a separate review of its risk management framework.
Earlier this month, Storonsky criticised British regulators, saying: “You wait for emails or letters for months. This is not the business environment to operate in the modern world.” He also added that an “extremely bureaucratic regulator” meant the company was more likely to float in the US than the UK.
Revolut spokesman said: “We do not comment on ongoing licence applications.”
The Prudential Regulation Authority and UK Treasury have declined to comment.
UK worst performer in G7
Speaking with AIBC News, Professor Colin Lawrence shared an update on the UK’s economic outlook and the Bank of England’s performance.
He spoke about the Bank of England raising rates by 25 basis points to 4.5 percent. “This is the 12th successive hike going from 0.1percent in 2021. But despite these hikes, the rate of inflation is still stubbornly stuck at slightly over 10 percent.” He explained that this high inflation rate is caused partially by the hike in energy prices and foodstuffs as a consequence of the Ukrainian War.
In contrast to the USA inflation is down to 5pc. The inflation is stuck there particularly due to posture of the Bank of England’s quantitative easing ( QE) in Great Recession of 2008 /2010 driving the economy into a liquidity trap. In essence investment spending has remained low; this has been augmented by the disastrous Brexit treatise leading to a collapse of investment into the UK. Large scale strikes in the public sector are crippling the health services. Currently GDP in Q1 2023 only added 0.1 percent – making the UK the worst performer in the G7 and expected to be the only G7 country to shrink for 2023. Because GDP is not growing , the Government has lost significant revenues. It has failed to build significant trade deals with the USA ; it also had a disastrous delivery to COVID19 ; over 187000 people died from COVID which makes it one of the worst performers in OECD countries” – Professor Colin Lawrence – Former Director of the Bank of England
Professor Lawrence added that the UK’s major political parties have decided not to mention the B word (Brexit). He believes that politically this populist process is crippling the economy. He argued that the UK is not in good shape and referred to the Tories suffering devastating losses with a huge surge in control of local councils by the Labour Party. Especially true was the loss of local seats in Brexit constituencies where Labour voters switched back to their traditional Labour roots. And in traditional blue consistencies voters switched to the Liberal Democrats.
Professor Lawrence believes that Brexit is wrecking havoc but he points out that Labour leader Sir Keir Starmer is not mentioning the “B” word and this shows its a winning strategy since the Government is being blamed for it.
As things stand, concludes Professor Lawrence, Labour is likely to win the UK general election next year although it might be a minority government.
AIBC News spoke with Professor Colin Lawrence who is a Senior Financial Services Advisor, sitting on multiple Advisory Boards as a non-executive Director of Financial Risk and Regulatory Advisor.
He is an expert on challenging and critical risk strategies for global financial institutions, central banks and regulators. He advises corporates on how to strengthen their business model and public policy framework. Dr Lawrence is former Director of Risk at the Supervisory Specialists Division at the Bank of England and Financial Services Authority. He was pivotal in creating the Prudential Regulator Authority (PRA) in the Bank of England.
Dr Lawrence played a major role in the bail out of banks in the 2008 crisis. He designed and built the new cloud based technology for stress testing. He was then appointed Partner of Ernst & Young on the Risk Management and Regulatory Advisory Group to identify key challenges for major financial services clients. Dr Lawrence is a renowned expert on BCBS standards and all aspects of the Basel Capital Accord, the Financial Stability Board and the Regulators structure of the EU, including the ECB, the SSM and the Financial Stability Board. Formerly he was Managing Director at BZW, Nat West and First National Bank of New York. He is former Professor Emeritus of finance at Columbia University.
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