Revolut finally receives UK banking licence after three-year wait

Revolut has secured a UK banking licence – with “restrictions” – more than three years after Britain’s most valuable fintech firm lodged its application with regulators.

It is a milestone for the company, and will help pave the way for an eventual stock market listing, but it may still be some time before it can hold its customers’ deposits.

Tentative approval from the Bank of England means Revolut is in the mobilisation stage, where it will build up its banking operations.

The London-headquartered firm has waited years to get to this stage, having lodged its application for a UK banking licence in 2021.

The challenge, in part, was convincing regulators that Revolut had addressed a number of accounting issues and EU regulatory breaches, as well as reputational concerns, including an over-aggressive corporate culture. The UK’s Financial Conduct Authority also reportedly investigated the business in 2016 after a whistleblower claimed it was failing to conduct adequate money-laundering checks or properly flag suspect payments. That investigation was closed in 2017.

Revolut has said it fully complies with anti-money laundering and terrorist financing regulations, and has made efforts to improve its working culture.

The consumer group Which? also raised concerns about Revolut and its approach to reimbursing scam victims. A spokesperson said: “Revolut’s banking licence would have some benefits for its customers, for example their money being protected by the Financial Services Compensation Scheme up to £85,000. However, the company needs to step up and show how it will improve its approach to stamping out fraud.”

Revolut’s founder and chief executive, the former Lehman Brothers trader Nik Storonsky, hit out last year at regulators over the lengthy licensing process, claiming it was “hard to do business in the UK”, where there were high taxes and “an extremely bureaucratic regulator”. He also said he would consider floating the company in the US instead of the UK, in what would be a major blow to the London Stock Exchange.

The banking licence is a key step in accelerating Revolut’s growth, because it moves the company on from its current status as an e-money firm that operates as an intermediary between consumers and licensed banks.

It will allow Revolut to hold customer deposits, opening the door to new income streams, since it can start funding own-branded loans and mortgages. However, it will also face more stringent regulations as well as being part of the compensation scheme.

It is unlikely that a firm would fail to secure a full UK bank licence at this stage, but it is not guaranteed.

Most startups use the mobilisation period to address any outstanding issues, such as ensuring they have the appropriate staff, IT systems and governance and accountability checks in place to satisfy officials, and secure their status as a UK bank. This process can “take as little as a few months but cannot continue indefinitely”, according to guidance from the Bank of England, which said it should not take longer than a year.

Revolut has not disclosed any of the remaining items on its regulatory checklist.

Approval by UK regulators is likely to persuade regulators in other key countries, such as the US, to follow suit.

Storonsky said: “We are incredibly proud to reach this important milestone in the journey of the company and we will ensure we deliver on making Revolut the bank of choice for UK customers.”

The announcement comes just weeks after the company reported record annual profits of £438m for 2023, having made a £25m loss a year earlier. Profits were bolstered by higher interest rates and ambitious expansion plans that increased it user base by 12 million customers last year.

Revolut gave further hints last month that it was on track for a bumper initial public offering. It said in its annual report that it had enhanced its financial controls in ways expected of “listed companies”.

Bosses are reportedly preparing to sell a tranche of employee shares to private investors first in a deal that could bolster its valuation to $40bn (£31bn). Revolut was last valued at $33bn in 2021, making it the most valuable fintech company in the UK.