This is so hilariously bizarre. Why does a customer have a bank executive's personal number? Why was the account frozen? Who did the exec think he was texting? And who was he going to be waiting for armed?
I feel invested at this point, like I've watched a movie that just cut off in the middle...
The article seemed to imply the customer had been texting complaints directly to the executive, not that the executive just cold texted a customer a weird threat.
True. But since he said that he’ll be waiting at his own home that probably means that the unhappy customer was threatening to visit him which is also a bit scary…
Haha it's absolutely hilarious. You can fail so utterly maliciously and just get your best mate at another company to hire you on 10x salary. Absolute. Gold.
In an unrelated matter, experts are baffled at the ongoing weakness in the banking sector.
If they were allowed to fail then they might not take the big risks that they deserve big rewards for taking! And then what would be left to trickle down to everyone else?
“There is not any doubt over the completeness of the balance sheet, which, in turn, logically means that total revenue is also correct,” he[0] said.
By my reading, this directly contradicts the statement of the auditors, published on Revolut's web site[1]:
As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning the completeness and occurrence of certain revenues for the year ended 31 December 2021. We have concluded that where the other information refers to revenue or related balances these may be materially misstated for the same reason.
By my reading, this says that it's not just revenue that may be materially misstated, but revenue or related balances. So the statement by the CFO directly contradicts what the auditors say about both the Income Statement and the Balance Sheet.
When auditors talk about the Other Information they mean the front half of the annual report and accounts i.e. the annual report rather the actual financial statements.
1. The part I quoted suggest that any statement by management about revenue-related balances may be unreliable.
2. The 'Basis for qualified opinion', which does refer to the financial statements is clear that they were unable to verify almost 500MM GBP of revenue.
... we were unable to satisfy ourselves by the execution of such procedures or by alternative means concerning the completeness and occurrence of revenue within these streams totalling £476,856k which is included in the Statement of Comprehensive Income and Note 6 of the financial statements for the year ended 31 December 2021. Consequently, we were unable to determine whether any
adjustments to this amount or related amounts were necessary.
Regarding #2, if these numbers turn out to be incorrect, then it's extremely unlikely that the income statement could be adjusted without the balance sheet also being adjusted. The income statement reflects changes in the balance sheet over time. If the changes turn out to be wrong, then there are three possibilities:
From what I have read in the last years of how the CEO and the company in general operate I would not be surprised if there will be a criminal investigation. This isn't the first time Revolut has had issues.
This is really quite very very bad. I remember someone on twitter a while ago pointing out they keep missing the deadline for publishing their accounts. Like one of the things I would be quite keen to do if I were applying for a banking license would be to make sure I'm getting the paperwork right. Given that Revolut have raiesd enormous amounts of cash, I'd imagine they're pretty keen to IPO, and to do that they need a UK banking license - and there's just no way that's happening any time soon given what's going on. This could really cause them trouble and in the mean time the equity of any of the employees has probably already gone to zero because of the massive valuations they've raised at.
They counted on their chumminess with the Prime Minister, Rishi Sunak, who's been an outspoken supporter of Revolut. Iirc a report from Private Eye, there is a hint of an ongoing cold war between the PM's henchmen telling bank regulators to let them get the license, and regulators resisting - likely because nobody wants to be responsible for authorizing a business that clearly doesn't meet the necessary requirements in very obvious ways.
Also in 2008, the UK had an issue where 350k residents had deposits at Icesave, a savings account offered by Landsbanki in Iceland, that went bust. The bank wasn't registered in the UK, and the government of Iceland refused to provide compensation for those that lost their deposits. They probably want to avoid a repeat of that.
Two things: first they’re a bank, in the Uk, it looks terrible to not have a banking license and that’d kill their IPO price. Second, there are limitations on customer deposits and the services they can provide because they aren’t a bank, for example they aren’t currently Uk equivalent of FDIC insured. There’s basically an assumption that their banking license will massively help both their growth and their value per customer.
But they do have a license in Lithuania which means all the deposits are covered by their insurance. I agree about the IPO part but I really find it hard to imagine an IPO would make any sense for them at this point. I don’t think there is any chance they could reach their current private valuation…
Revolut has had a fee questionable moments already, this does not seem to have been the case for other European fintech operations (wise, klarna, n26 etc).
So yeah, I think a lot of fintech is not particularly good, but I don't think we can generalize to the level of the crypto boom.
The FCA (UK regulator) is also refusing to issue them a banking license, even a challenger bank one. It is still operating under their Lithuanian banking license.
I really don’t understand why so many people in the UK use it as the deposits are not FSCS protected so if something goes wrong you’re fuck out of luck.
It always was a very simple way to handle remittances for European migrants, and to get travel money for everyone else. Some people then got carried away, probably because their PR was always pretty good.
I had to warn a friend of mine who kept 5-digit savings in there. He didn't know about the lack of banking license (and this was even before they got the Lithuanian one) and was pretty shocked.
> I really don’t understand why so many people in the UK use it as the deposits are not FSCS protected so if something goes wrong you’re fuck out of luck.
I wonder if this is the kind of lesson that needs to be re-learned every few generations?
Why do they do it? Is it a reaction on regulator critique, or a plain "let's lock this account up to take some money" dumb (or smart?) profit-generation?
1. A dumb money laundering detection algorithm that does it's thing with 0 human interaction (basically the same reason people get locked out of their Google accounts for no reason).
2. Untrained and insufficient customer support (again similar to Google).
3. In my case: asking for documents to prove residency (they're supposedly legally obligated to do so,, but none of my other banks ask for this). The documents they ask for cannot be produced by someone who shares an appartment in the EU (no bills in my name, no rent receipts in my name, no address on ID cards). Game over. Account and card blocked. 0 flexibility from customer support, 0 help.
I guess this is a bit like my take on Uber - they may be rotten to the core and damaging the very fabric of society, but at the very least they pushed competitors of all kinds to improve the hailing/ordering experience, so now taxis and rideshares around the world can be ordered via an app, with built-in map and address search.
Back to Revolut - I'm of two minds about bank apps. On the one hand, good apps are good, and some things really get streamlined this way. On the other hand, this only sets us up for another battle in the war on general-purpose computing: a fight over mobile device ownership.
Banks didn't just improve the UX of their apps. Some made them the primary or sole remote interface to one's accounts. Many (most?) are now using apps for 2FA, and heavily pushing it - with such banks, using the web interface from a PC browser still requires confirming any meaningful operation via the smartphone app.
The problem here is, banks are one of the most eager users of remote device attestation features, and (by being big and full of money) they have all the leverage over users and smartphone vendors alike. Many bank apps will refuse to run if they detect the phone isn't pristine and fully locked down by the vendor - and with modern phones now coming with built-in APIs for such checks, rooting the phone or flashing it with custom firmware is quickly losing all value. After all, what good is a rooted phone if you can't use it for anything important that smartphones now do?
Banks want to sink as much data from the consumer device as possible. Remember bank app wants a permission to access all files and calls and messages and location and physical sensors?
They don't care about security other than for avoiding devices that gives user a control over what data is accessible.
Security in banks is generally very basic (anyway, everything is covered with insurance, which is paid by the users, in the end).
User data is used mainly to calculate credit rating and for upselling.
Well, yeah, they should really aim to clone the stability and efficiency of traditional banks, like the target of any bank should really be to mimic the operational beauty of Deutsche Bank, Santander, Monte Paschi, ABN Amro, and so on.. they're the pillars on which our society is built upon
Fintech just means your valuation is based on how long you can expect to get away with ignoring checks and balances. You're no longer pre-revenue, just pre-regulation.
Punchline: “IT systems weren’t designed in such a way that would allow for IT or business process controls to be effectively tested throughout the year.”
Pssh, these are precisely the kind of burdensome regulations that are leading fast moving, thing-breaking companies like Revolut to leapfrog traditional finance /s
CFO's comments to The Guardian in December 2022 (the article also mentions the auditor's concerns)[0]:
> Mikko Salovaara, its chief financial officer, told the Guardian in an interview that the company was on the brink of getting a banking licence from City regulators: “I think we’re at the very last stages. Really at the finish line.” Salovaara said the UK licence was a step towards achieving Revolut’s aim of becoming a “truly global bank”. It would allow the company to offer “an increasing set of services to our customers, particularly credit.”
Sounds like another Wirecard. There's even the cliched startup quote "we want to be the Amazon of banking". WC wanted to be the Paypal of Europe. Amazing how far you can get before you've earned a single cent of profit!
There’s a huge leap between fucking up your accounting systems and doing outright fraud. This isn’t even close to what WC was doing, at least from the available information.
If you're providing financial services in a heaivily regulated industry, it's not that big of a leap. The company has a pending application for a UK banking license for the past 28 months; the turnaround time for that in the UK is 12 months. Yet even now, they have filed their accounts several months late, and without a clean bill of health from the auditor.
The CFO of all people should have advised withdrawal of their application until internal controls were sorted. That they're resigning instead doesn't bode well.
It is also worth pointing out the original article also accompanied an implicit threat to take their company to the US if they weren't given a banking licence immediately.
The stuff with the accounts already existed, apparently the regulators found these issues when examining their suitability for the licence (I have read from sources online that there is a very significant issue with revenue recognition, as in a percentage of revenue significantly above 50% couldn't be matched in their systems), but the resignations came after they went to the media and tried to bounce the BoE into giving them a licence (spoiler: what the CFO is quoted as saying it is total bollocks, they aren't close to getting a licence).
The media furore in the UK from execs about insufficient levels of executive pay unfortunately has created the space for opportunism like this.
> The company has a pending application for a UK banking license for the past 28 months; the turnaround time for that in the UK is 12 months
Wow...I'm a bit surprised. We've had a pending application for VAT registration in the UK since sometime in the 1st quarter of 2019. I had assumed that if a government is so short of resources that they can't manage to process applications to collect taxes for them, they would probably also be very slow on applications for financial things that don't directly give them money.
Every time we ask about our VAT application, they just say it is still processing. They told us to collect VAT, but to call it something else like "additional fee", and hold it until they get around to processing the application.
I did a UK VAT registration in 2020 and it took about a month. I did one back in 2005 or so and it took a similar time. Years is exceptionally slow.
The "additional fee" process is only intended to cover a few months at most. It doesn't work for a long period as your customers can't claim back the amount paid until they receive a replacement invoice formally recordable as VAT, when your registration comes through. If "additional fee" is done for longer, that creates a situation where you end up having to lower your price to business customers who normally don't count VAT in the price because they can quickly reclaim it, but you are still paying VAT on that income (by having to set it aside). That combo is not how VAT is supposed to work.
I wonder if the difference is that you are in the UK? We're not. We're in the US.
Prior to the Brexit implementation we dealt with VAT on sales to EU customers using the VAT MOSS system, with Ireland being the country we were registered with.
I have worked with some corrupt and incompetently bureaucratic global south governments even they wouldn’t take 4 years for a thing like VAT something is terribly wrong with UK.
I don’t know if average turnaround time applies here, because Revolut is getting a license on top of an already huge business.
But again, all of what you said indicates that Revolut has fucked up. But it doesn’t mean they are doing WireCard levels of fraud, or any fraud at all.
Then it was an extremely stupid move to rack up a large number of UK customer accounts if you know it will make the licensing process more onerous, and delay the introuction of financial product that are dependent on the license.
Let's be real, they set up shop in Lithuania first because it was an easy way to enter the then-EU member UK market. Their offices are based in London because they weren't going to get unicorn valuations sitting in Vilnius.
In this era of bank-runs, 2008 having been can-kicked, a massive regulatory crisis in the US markets (short hedge funds succesfully trying to cellar box banks and other stocks deliberately by shorting with counterfeit stock), the US about to enter hyper-inflation this decade, derrivatives crash incoming, FTX corruption, etc.
I'm NOT going to give Revolut the benefit of the doubt I don't think :p
But it is like a smoke alarm going off. It doesn’t mean there is a fire but there could be.
This company is so big that it should have a mature infrastructure for this type of thing. It is quite strange and thus suspicious that it is running its business is a haphazard way that it can not be effectively audited.
What does it mean to be "effectively audited"? Is my spreadsheet missing a pivot table?
Let's just remember that most bureaucracy exists so that only those who persevere can make it to the other side. And even then if you bother the wrong people there's more bureaucracy to harass you with.
Typically it’s against the law to file/maintain false business records, and to the extent that they raised money based on inflated financials that would typically be some sort of fraud
I am not sure you can start a crime investigation until there is an accusation of a crime. A failing audit isn’t enough.
Financial oversight groups should start an investigation but it probably shouldn’t be called criminal at this point. Just an oversight issue where they demand more info.
Accusation by whom ? Who would have standing to accuse before investigating?
Enforcement bodies start investigation for any reason and none, (see all the stuff FBI did during civil rights movement for example ) at best legal framework used is probable cause
