What next for Revolut if its UK banking licence is rejected?

Revolut has been waiting two years for a banking licence. Image credit: Revolut

The Bank of England is planning to reject Revolut’s long-running application for a UK banking licence, according to reports, in a move that would strike a major blow to Britain’s most valuable fintech company.

No official decision has been announced, and both Revolut and regulators are remaining tight-lipped. But what are Revolut’s options should confirmation come through that its banking licence application has been unsuccessful? And could it see Revolut draw back from the UK market?

The background

According to The Telegraph, which first reported the development last week, The Prudential Regulation Authority (PRA) has informed the Treasury that it intends to reject the fintech giant’s banking application. The PRA is the regulatory arm of the Bank of England.

Revolut, which provides a variety of services including debit cards, crypto and stock trading, has for two years been hoping to extend its product offering in its home country to include licence-required banking services. These include customer lending products such as mortgages, along with managing customer deposits.

Without approval from the PRA, Revolut will be limited in the financial services it can offer in the UK as an e-money institution.

The PRA’s concerns reportedly lie in part with irregularities in the company’s balance sheet. According to a recent audit of Revolut, accounting firm BDO said it was unable to independently verify three-quarters of the fintech’s revenue, warning that some information may be “materially misstated”.

The unverified revenue flagged by the auditor was £477m of Revolut’s reported total of £636m for 2021.

Revolut’s share structure is also a sticking point, with the PRA asking the fintech to simplify it in a move that could see it clash with shareholder SoftBank, according to the Financial Times. 

Revolut, the PRA and the FCA declined to comment.

PRA banking licence requirements  

The PRA offers a list of expectations it has for firms applying for a banking licence. They include prudent conduct of business, satisfactorily showing the firm is “fit and proper” with regard to all regulated activity and demonstrating the firm can be “effectively supervised by the PRA”.

The PRA assesses whether applying companies have appropriate risk prevention, have established the “right culture” of effectiveness and reliability and have a reasonable business model in place.

“Effective risk management is key. In this regard, the regulators want to see a strong governance framework and suitable individuals holding senior management functions,” said a partner working for a law firm specialising in government disputes. 

“As a result, issues will arise where the governance structure lacks appropriate structure/sophistication and there is a perceived lack of resourcing.”

In January, Revolut created a new division to monitor whether staff are being “approachable” and “respectful” to address criticism of an aggressive corporate culture.

The company has also seen key executives depart, including the recent exit of its CFO who cited “personal reasons”.

What can Revolut do if banking licence is rejected?

Officially, the statutory warning from the PRA has not been delivered and The Telegraph has reported Revolut is working urgently to rescue the application.

When the PRA rejects applications, it typically offers a list of its concerns for the applying company to address before it can submit another application.

However, Revolut has previously stated it does not agree with the concerns flagged in the recent audit, having said its revenue was “not in question” and that any concerns from the auditor were “remedied in 2021”.

If Revolut does not accept the concerns reportedly expressed by the PRA and the Financial Conduct Authority (FCA), there is a possibility to appeal the decision. However, there is little precedent of this to provide comfort to Revolut.

UKTN spoke to another lawyer specialising in finance who said that while it is technically possible for a firm to challenge a rejected banking application from the PRA and FCA, the likelihood of overturning the decision based on previous instances is slim.

They noted that it is very rare for companies the size of Revolut to find themselves in this scenario and that regulators usually encounter issues with smaller, less-resourced firms. However, as a general rule firms are not usually successful in challenging decisions relating to authorisations, the lawyer said.

Revolut has for some time now offered FCA-regulated services outside of banking, including cryptoasset purchases, which were licenced last year.

Because of this, the UK financial regulators already have extensive data and a history of dealing with Revolut, which could inform later decisions if any red flags were found in previous interactions.

Could Revolut leave the UK?

If Revolut is unable to satisfy the concerns of the PRA, could it consider moving its focus away from its home market?

Headquartered in London, Revolut’s management – notably its co-founder and CEO Nikolay Storonsky – have repeatedly accused regulators of inefficiency, red tape, and unreasonably delayed responses.

Earlier this month, Revolut’s co-founders took aim at UK regulators, calling the process “long and tiring”. Storonsky told The Times: “You wait for emails or letters for months. This is not the business environment to operate in the modern world.”

Revolut is understood to be meeting government ministers in the coming weeks to relay complaints from businesses about regulatory hurdles that executives say could push firms overseas.

But would it be feasible for Revolut to pull away from the UK market? Revolut operates internationally, with its most recent figures stating it has more than 25 million active users globally across more than a dozen countries.

The company has put an emphasis on expanding into as many territories as possible, recently undergoing a push in both the Indian and Brazilian markets. Despite this, the UK remains by a wide margin its biggest market.

Statista reported that as of February 2023, the Revolut app had been downloaded 8.7 million times in the UK, far above second place France with 3.9 million downloads.

The UK is Revolut’s biggest market on a user basis, so pulling away as a reaction to regulatory disagreements would be costly, particularly as the PRA decision does not prevent the company from continuing its existing e-money services in the UK.

However, if Revolut continues to clash with UK regulators, it is possible the firm might look at relocating its headquarters and refocus its efforts on other markets.

If the company opts to go ahead with its push into banking as a primary revenue source, it may double down on Europe. Revolut secured a banking licence in Lithuania in 2021, which gave it the authority to operate across the EU.

Recent financial statements from Revolut suggest this could be a fruitful option. Its latest financial report stated that European revenue reached £432m in 2021, compared to the £195m in the UK.

Despite its ongoing hurdles, Revolut is continuing to roll out new features. From 30 May this year, the fintech will offer consumer loans to its two million customers in France. Revolut has already launched similar offerings in markets including Ireland, Lithuania and Romania.