Last July, Revolut finally obtained its long-awaited UK banking licence. The authorisation followed a gruelling three-year process, in which regulators scrutinised the company’s accounts and operations.
But one year later, Revolut’s banking licence remains in the “mobilisation” period, awaiting a final sign-off before it can start operating as a fully licensed bank in its home market.
Founded in 2015 as a travel finance app, Revolut has risen to become Europe’s most valuable fintech, launching dozens of products and services, including business banking, stocks and shares trading products and even flight and hotel-booking services.
Despite such rapid growth, industry watchers and legal experts tell Sifted it’s no surprise Revolut’s taking longer than expected to leave the restrictive period.
With over 10m customers in the UK, the fintech is likely subject to increased scrutiny from regulators. And it’s the fintech’s gargantuan size that has also politicised the process, with the government and the Bank of England (BoE) drawn into the story in recent weeks, they say.
What is the mobilisation period?
Upon entering the mobilisation period last year, Revolut was tasked with building out its banking operations, hiring senior staff and ensuring its IT infrastructure and compliance and risk management functions are up to scratch. Revolut has reportedly hired hundreds of new staff in a push to become a fully licensed bank this summer.
The company will also need to make another application to exit the mobilisation period three months prior to show it meets requirements for a wide range of internal processes on IT infrastructure, compliance and recruitment.
Official BoE guidance says a mobilisation period “should take no more than 12 months” — a milestone Revolut passed in June.
“It’s not an absolute firm deadline,” says Michael Thomas, partner at law firm Hogan Lovells. “They do acknowledge that there might be circumstances where a bank might need to be in mobilisation phase for longer than the 12 months for something out of their control.”
A fintech going through the process might not be able to hire the required staff in time due to issues in the job market, for instance, he says.
The official guidance also says while it normally doesn’t allow banks to remain beyond a 12-month period, there are “some circumstances” beyond a bank’s control which might make it difficult to exit within the 12-month period.
Fellow neobank Zopa Bank, for instance, first received its authorisation as a bank with restrictions in December 2018. These restrictions were lifted 18 months later in June 2020.
Once Revolut’s restrictions are lifted, it will be able to launch a raft of new products and services, particularly in lending. According to a pitch deck obtained by Sifted, Revolut is gearing up to offer credit cards, personal loans and overdraft facilities in the UK next year.
“Given Revolut’s global scale, this is the largest and most complex mobilisation ever undertaken in the UK,” a Revolut spokesperson said. “A thorough review is an expected part of the process and getting this right is more important than rushing to meet a specific date.”
What’s holding it up?
Revolut’s size and scale has likely slowed the process down.
“There’s nothing normal about Revolut’s situation,” says Lotus Qi, chief operating officer at pre-seed investment firm Twin Path Ventures. “They are going through with 10m active customers when usually it’s <500k.”
Prior questions over its compliance controls — which include a €3.5m fine by the Bank of Lithuania over its failure to root out money laundering and an October BBC Panorama report which identified Revolut as the UK bank with the most fraud cases — likely haven’t helped either.
“These issues touch on key parts of the FCA’s assessment as the conduct and AML regulator of banks,” says Shaanil Senarath-Dassanayake, an associate at international law firm Charles Russell Speechlys. “It highlights potential compliance issues for Revolut’s UK banking business, particularly if the UK business is relying on intragroup arrangements with other Revolut businesses, systems, and processes that were subject of these breaches.”
Revolut’s mobilisation process has also become uniquely politicised. At the tail end of July, the FT reported UK finance minister Rachel Reeves brokered a three-way meeting between Treasury officials, BoE regulators and Revolut to discuss the issue, which was then personally blocked by BoE governor Andrew Bailey.
Bailey later denied a “falling out” with the UK government over delays to the fintech giant’s banking licence in an interview with CNBC.
Senarath-Dassanayake says Revolut’s position as one of the most valuable tech companies in Europe and its undecided location for a future IPO could give it leverage with regulators.
She says: “However, when it comes to supervising authorised firms, I don’t think Revolut will, nor do I think that they should, get special treatment from the regulators.”
What’s next?
The BoE’s Prudential Regulatory Authority (PRA) could take steps to remove a firm’s authorisation if a company like Revolut is unable to meet its standards.
If the banking authorisation were to be revoked or Revolut were to cancel its authorisation, it could acquire a UK bank or seek authorisation in another jurisdiction.
But Revolut’s drawn-out process shouldn’t be taken as an indicator that it will be revoked, experts say. A Revolut spokesperson told Sifted it’s progressing through the final stages of mobilisation and expects to launch as a fully regulated bank in the UK this year.
Hogan Lovells’ Thomas says the PRA would want to make sure any extension isn’t “indefinite” and there’s a clear timeline and plan for when and how the necessary steps are completed to obtain a fully-fledged licence.
It could also make sense from a business perspective to iron out any kinks before going live as a bank, says Twin Path’s Qi.
She says: “Missing the deadline is inconvenient, but getting their banking license revoked would be catastrophic.”
Read the orginal article: https://sifted.eu/articles/revolut-banking-licence-analysis/
