The UK regulators did not make it easy for Revolut, founded in 2015 by Nik Storonsky and Vlad Yatsenko, then Russian citizens. The UK’s most valuable fintech firm has finally secured a UK banking license with certain restrictions, following a three-year application process. This milestone will enable Revolut to hold customer deposits and offer own-branded loans, including mortgages, setting the stage for its eventual stock market listing.
A Milestone Achievement
Revolut‘s tentative approval from the Bank of England marks the beginning of its mobilization stage, where it will build up its banking operations. This comes after the London-headquartered firm submitted its application in 2021. The prolonged approval process involved addressing accounting issues, regulatory breaches within the EU, and reputational concerns, including allegations of an aggressive corporate culture.
In 2016, the Financial Conduct Authority (FCA) investigated Revolut after a whistleblower alleged inadequate money-laundering checks and failure to properly flag suspect payments. The investigation concluded in 2017. Since then, Revolut has asserted full compliance with anti-money laundering and terrorist financing regulations, and it has taken steps to improve its working culture.
The Cyberfinance Rating Agency PayRate42 has Revolut on its Green Compliance and Green Risk lists.
Go to the Revolut profile on PayRate42.
Consumer Concerns and Regulatory Scrutiny
Consumer advocacy group Which? raised concerns about Revolut‘s approach to reimbursing scam victims. A spokesperson noted that the banking license would benefit customers by protecting their money under the Financial Services Compensation Scheme up to £85,000. However, they urged Revolut to demonstrate a stronger commitment to preventing fraud.
Moving Beyond E-Money Status
The banking license is a crucial step for Revolut, allowing it to transition from its current status as an e-money institution to a fully-fledged bank. This change will enable Revolut to hold customer deposits directly, paving the way for new revenue streams through own-branded loans and mortgages. However, it will also subject the company to stricter regulations and participation in the Financial Services Compensation Scheme.
During the mobilization period, Revolut will address any remaining regulatory issues, such as staffing, IT systems, and governance, to secure its full UK bank status. According to the Bank of England, this process typically takes a few months but should not extend beyond a year.
Read our Revolut reports here on FinTelegram.
Global Implications and Future Prospects
Securing a UK banking license is expected to influence regulatory bodies in other key markets, such as the US, to follow suit. Storonsky expressed pride in reaching this milestone, emphasizing Revolut‘s commitment to becoming the bank of choice for UK customers.
The announcement follows Revolut‘s report of record annual profits of £438 million for 2023, a significant turnaround from a £25 million loss the previous year. The profit surge was driven by higher interest rates and ambitious expansion plans that grew its user base by 12 million customers in 2023.
Preparing for a Public Offering
Revolut has hinted at a forthcoming Initial Public Offering (IPO). In its recent annual report, the company highlighted enhancements in financial controls to meet the standards expected of listed companies. There are also reports of plans to sell a tranche of employee shares to private investors, potentially boosting its valuation to $40 billion (£31 billion). Revolut was last valued at $33 billion in 2021, solidifying its status as the UK’s most valuable fintech company.
