Telegraph article
ONE of the UK’s most promising financial technology start-ups has been accused of violating basic banking rules by failing to block thousands of potentially suspicious transactions on its platform.
Documents seen by The Daily Telegraph show that for three months last year Revolut switched off an automated system designed to stop dubious money transfers.
As a result, thousands of illegal transactions may have passed through the London-based start-up’s digital banking system between July and September of 2018.
Revolut launched an internal investigation in late 2018 after a whistleblower contacted Revolut’s board about serious issues with its sanctions screening system.
In a letter to the Financial Conduct Authority (FCA) in September 2018, Revolut’s head of legal Tom Hambrett wrote: “The investigation concluded that the original decision to turn off the transaction-halting mechanism was erroneous and implied a remediable systems and controls failing.”
Sanctions screening systems automatically check customer records against an official list to identify highrisk transactions and those flagged as “politically exposed persons”.
Revolut, which has grown to over 3m customers around the world since its launch in 2015, contacted the Financial Conduct Authority in September to inform the watchdog of a three-month “failing”, The Telegraph can reveal.
It told the FCA that it had disabled part of its sanctions screening system after it made 8,000 “false positive” flags, incorrectly identifying legitimate transactions as being suspicious and blocking transfers. The company then moved to a compliance system that flagged transactions but did not automatically disable them, Revolut said.
The problems at Revolut follow a string of regulatory issues at other so-called “challenger banks”. Metro Bank was forced to announced plans to raise £350m from investors this week after revealing that it had underestimated the risk level of some of its commercial loans. Metro Bank’s shares fell a further 27pc yesterday after tumbling 16pc on Tuesday as the extent of its issues became clear.
The FCA was only informed of the problems at Revolut after an employee complained to the board about the switch and the fact it did not automatically block suspicious transactions.
The company reactivated its sanctions screening system on Sept 16, Revolut told the FCA.
Revolut told the watchdog it did not believe that it had broken the law during its switch to a different compliance system. “To the best of Revolut’s knowledge there has been no breach of law with respect to sanctions requirements,” the company wrote.
The digital bank has since introduced a new system following the incident last year, it said in the letter.
However, the incident raises questions over Revolut’s ability to stop individuals and companies who are hit by international sanctions from using its app. It follows a report by the bank to the FCA and National Crime Agency last year in which it warned both organisations of suspected money laundering through its app.
The digital bank has suffered a number of departures from its compliance team in the past two years, including two chief risk officers, the chief compliance officer, and two money laundering reporting officers.
A spokesman for the FCA declined to comment. A Revolut spokesman said: “Revolut does not comment on its engagement with its regulators.”