Revolut’s auditing and AML controls raise questions

News broke on Monday that Revolut are under review, after their auditing was checked by the Financial Reporting Council (FRC), the regulator of auditors, accountants and actuaries. Revolut’s auditors are BDO and the FRC said that an unidentified “financial services provider” poor audit work had created an unacceptably high risk of errors. Sources have confirmed that the unidentified “financial services provider” is Revolut.

The FRC said: “The risk of an undetected material misstatement was unacceptably high.”

The issue this raises is that Revolut is run as a tech company, but needs to have a back office like a bank. For example, Revolut has also been separately inspected by Japanese regulators who, on Friday, alleged that there were issues with the company’s money laundering and terrorist risk management controls.

The Tokyo-based Financial Services Agency (FSA) said:

“The FSA found the following serious problems with the Company's control environments for governance, management of outsourced contractors, and money laundering and terrorist financing risk management.”

Considering that Revolut is trying to get a UK banking license, these headlines will not help their case.

As The Telegraph reports, with the fintech industry and technology markets in general suffering a massive downturn in 2022, there are many issues the start-up faces. I actually laughed out loud when I saw this statement from Alfonso Marone, UK head of technology, media and telecoms at KPMG:

“In a strong wind, even a turkey can fly”

Very true.

Is Revolut a turkey? Not yet. It has more deposits and customers than any other challenger, but it is challenged in many ways itself, from its accusations of a toxic culture (FinTech’s growing pains and toxic cultures) to the pandemic’s conclusion hitting the results of all fintechs ( Revolut: over-hyped and immature? Yes and no …).

Yet Revolut is still bullish. Speaking to Fintech magazine, André Silva, Head of International Expansion for Revolut says the bank was strategising by focusing on the customer and their needs in tandem with a data-driven approach.

“This allows us to deliver the best product and has attracted 20 million retail customers to Revolut in seven years. From the very beginning, Revolut has hired the best talent. We continue to hire exceptional people globally and recently surpassed 5,000 employees.”

It'll be interesting to watch this space but, as The Financial Times notes:

“The rapidly growing payments group has suffered a string of high-profile defections in its risk and compliance teams in recent months. This may be the reason why it is late filing accounts … it suffered an exodus of senior staff in recent months, including its UK money laundering reporting officer, UK chief risk officer, UK data protection officer and both UK and global heads of regulatory compliance … accounts have been overdue since June 10 for Revolut NewCo UK, the entity intended to house the UK banking licence applied for by Revolut in January 2021, but which it still has not received.”

And it's not just compliance folks but CFOs too.

Considering the company has had an EU banking licence since 2018, it’s interesting that its UK banking licence – applied for in 2020 – is still outstanding ... and, reading between the lines above, could be outstanding for quite a while more.