Fintech firm Revolut moves closer to UK banking license after first annual profit | Fintech

Revolut, the UK’s most valuable fintech company, claims it is on the “finish line” to win a UK banking licence, as much-delayed accounts revealed its first annual profit.

The company has been praised as a high-growth success story by leading UK politicians, including Chancellor Jeremy Hunt, but it has also been criticized for late filing of accounts, as well as breaches of EU regulations and fines.

The company said that IT errors had delayed the accounts and that this had been fixed going forward.

However, external number crunchers BDO said in its delayed 2021 annual report that staff were unable to get a full picture of any of the company’s earnings and as a result it, or other financial balance sheets, could be “materially misstated”.

These problems meant the auditor was limited in his ability to detect “irregularities, including fraud”, it said.

It was able to confirm customers’ cash holdings with third parties and made no caveats about Revolut’s future as a going concern.

Allegations of an aggressive work environment, which Revolut has denied, have also come under scrutiny as the company pushes for a prized UK banking licence.

The fintech, which has ambitions to be the “Amazon of banking” and cannot yet hold deposits or make loans to customers, made a profit of £26.3m in the year to December 2021. The company’s revenue rose from £220m in 2020 to £636m in 2021.

Mikko Salovaara, the finance director, told the Guardian in an interview that the company was on the verge of getting a banking license from City regulators: “I think we are in the very last stages. Really at the finish line.”

Salovaara said the UK license was a step towards achieving Revolut’s aim to become a “truly global bank”. It will allow the company to offer “a growing set of services to our customers, especially credit,” he added.

Revolut did not put a deadline on when it expected to receive a UK banking license in the 2021 report, but instead said it was “in the advanced stages of its application” to UK regulators.

It added that revenue exceeded 830 million pounds ($1 billion) in the year to December 2022.

Nik Storonsky, CEO, said: “We have achieved our first full year of profit and demonstrated that we can accelerate customer growth at scale and increase revenue across all our product lines.

“In 2021, we received a full banking license from the European Central Bank and welcomed millions of new customers.”

Revolut’s accounts for the year ending December 2021 were to be published in the British business register Companies House in September last year. An extension until December was then also missed by fintech.

The delay is said to have come after BDO, which has been Revolut’s auditor since 2018, was reprimanded by the accounting authority for the “unacceptable” quality of a number of company audits – which, according to the Financial Times, included Revolut.

The FT report claimed that Revolut was the unnamed company behind accounts that the Financial Reporting Council said suffered from a “flawed” approach to the way revenue was recognized.

This process appears to be referenced in Revolut’s 2021 annual report. It states that the FRC’s audit quality assessment team examined BDO’s assessment of Revolut’s December 2020 financial statements and that “matters” were raised. An attempt to address these issues was “integrated into the 2021 audit plan” and there were “changes made to the audit strategy and approach”.

Salovaara said the long delays in publishing critical financial information were caused by having accounting IT systems that were not suitable for the company’s larger scale in 2021.

“It [Revolut’s growth] grew out of the first implementation of IT systems around and specifically for accounting. We recognized it and we fixed it.

“It is a one-off. We do not expect further delays on an ongoing basis in our accounts.”

As a result, Revolut’s top executives overseeing financial reporting concluded “the [2021] the audit was effective and that none of the matters raised called into question the integrity of the accounts for the previous year.”

Revolut declined to answer specific questions from the Guardian about the turnover of its compliance staff last month. These employees ensure that businesses follow the regulations, including sanctions and combating money laundering.

However, the 2021 report published on Wednesday said: “Last year we reported a significant expansion and upgrade of our risk and compliance function across people, processes, tools and infrastructure, which aligned with Revolut’s customer and commercial development.”

It added that it had increased the number of employees in this area from 147 to 206.