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Revolut Under Regulatory Fire​

By Jake Rickman​

What do you need to know this week?

As reported by the Financial Times, Europe’s second largest “fintech” company, Revolut, is facing pressure from UK regulators to substantially improve its accounting and compliance policies following an audit from BDO, which concluded the firm’s current accounting practices create an “unacceptably high” risk of material misstatement.

Revolut is one of a few so-called “challenger banks” that have emerged over the past few years. These insurgent companies, which also include Starling Bank and Monzo, offer retail customers checking and savings accounts that operate through proprietary tech platforms. This distinguishes them from traditional high street banks like Lloyds and Barclays, which have less technologically sophisticated platforms that many customers find too inflexible in the smartphone era. Revolut gained market traction for its international currency exchange offerings, which allow customers to transfer and hold different currencies without paying as much in fees as they would elsewhere.

While Revolut has had a series of successful fund raises to become the most valuable of the challenger banks, it has suffered several setbacks in recent months. Many senior managers including its UK chief risk officer, the heads of its regulatory and compliance, and its senior money laundering reporting officer, have exited the firm. Likewise, despite marketing itself as a bank, Revolut is still waiting to receive its banking licence from UK regulators, which means its customers lack FSCS protection over their deposits — something that Revolut’s competitors have.

Why is this important for your interviews?

Fintech is one of the most valuable sectors in the market. Revolut’s woes reflect the wider regulatory and compliance issues fintech companies face. As allegedly reported to the Financial Times by an individual close to the firm, “Revolut must improve ‘unsexy things like its back office and controls’ because ‘it needs to have a back office like a bank [but] it’s got the culture of a tech firm’.” Evaluating these challenges in an interview by using Revolut as a case study may make for compelling interview material.

Additionally, this story weaves together another theme we have touched on a few times in previous articles: the role of independent auditors in verifying a company’s accounts. The audit firm BDO, which is the fifth largest in the UK behind the Big Four (EY, PwC, KPMG, and Deloitte), has itself been under intense scrutiny by regulators for inadequately performing its statutory function of reviewing the accuracy of large company’s books. In turn, BDO seems to have reviewed Revolut’s 2020 accounts with renewed vigour to demonstrate to regulators that it is prepared to hold its clients to account for their accounts (pun intended).

How is this topic relevant to law firms?

By law, firms offering financial services, especially to the public, must have robust regulatory and compliance departments to minimise the risk of fraud and mismanagement. These departments work closely with their in-house legal counsel to develop adequate policies and ensure the firm complies with all applicable laws. External legal teams may be instructed from time to time to advise in-house counsel on complex compliance issues such as these.