Revolut Faces Financial Conduct Authority Inquiry Into Sanctions Compliance Controls and Belatedly Acknowledges CFO Resignation

Within the past week, The Telegraph published several articles reporting on two issues involving compliance and governance at digital bank startup Revolut Ltd.  First, on February 28, it reported that the London-based firm, which offers a variety of retail financial-services products through its app, had failed “to block thousands of potentially suspicious transactions on its platform, due to Revolut’s switching off an automated system designed to stop dubious money transfers” between July and September 2018.  The report speculated that “thousands of illegal transactions may have passed through [Revolut’s] system” during that period.

On March 1, The Telegraph stated that Revolut launched an internal investigation in late 2018 after a whistleblower contacted its board about “serious issues with its sanctions screening system.”  It reported that Revolut’s head of legal drafted a letter to the FCA that detailed the change, but that “a  decision was made internally not to send the document.”

On March 1, the Financial Conduct Authority acknowledged that it had been in contact with Revolut “to understand and assess the issues” that the Telegraph reporting raised. It further stated that it “expects all firms to have appropriate systems and controls in place at all times to monitor and counter the risk their services are abused for financial crime.”  A Revolut spokesman stated that “the company investigated after a whistleblower went to Revolut’s board with concerns that the sanctions compliance system had been turned off.”

Second, on March 1, The Telegraph reported that Peter O’Higgins, Revolut’s Chief Financial Officer, had resigned from the company in January 2019.  It said that Revolut confirmed that O’Higgins, an experienced financial-services executive who had been at Revolut since 2016, “quit the company at the start of the year.”  A Revolut spokesman separately responded that O’Higgins had left the company, but asserted that “there is no relation whatsoever to the compliance issue suggested by The Telegraph.”

The founder and Chief Executive Officer, Nik Storonsky, responded with a blog post, entitled “Let me set the record straight,” on both the compliance-controls issue and O’Higgins’s resignation.  On the compliance issue, Storonsky characterized The Telegraph’s reporting as “some misleading information in the media relating to our compliance function.”  He explained that in July 2018

we rolled out a more advanced sanctions screening system in parallel with our existing controls. Like any other technology company, we’re always looking to improve our systems.

During the initial testing stage of these new systems, we decided that they were not calibrated to a standard that we would expect, so we therefore decided to temporarily revert to our existing controls, while we continued to enhance the new systems. In our view, the new systems were imprecise and were resulting in too many false positive cases, which in turn resulted in an increase in customer dissatisfaction.

He also stated that

[a]t no point during this time did we fail to meet our legal or regulatory requirements. We conducted a thorough review of all transactions that were processed during this time, which confirmed that there were no breaches. Unfortunately, this fact was not included in the original news story. This roll-out did not result in a breach of any sanctions or money laundering laws and requirements – so we did not send a formal notification to the regulator.

With regard to O’Higgins’s resignation, Storonsky explained that O’Higgins’s decision to resign was unfortunately “caught up” in the media coverage on the compliance issue:

Any suggestion that Peter’s resignation is in any way, shape or form connected to this roll-out is utterly false and damaging. Peter has since expressed to me that he has been hurt by this suggestion and sad that his departure has been tainted in this way.

In reality, Peter has decided to step down on the basis that he feels that the business will require someone with global retail banking experience as we prepare to apply to become a licensed bank in multiple jurisdictions.

Storonsky added that the Revolut team “will be sad to see Peter go,” but respect his decision to step down, and expressed his gratitude to O’Higgins “for his commitment, enthusiasm and accomplishments” over his three-year tenure.

Note: These reports are the latest in a spate of unwelcome publicity for Revolut in the past month.  On February 8, Revolut admitted that in its series of London Underground ads, precise data in the text about the spending habits of users of its app were “just made up.”  On February 28, Wired reported, based in part on interviews with former company staff, that Revolut’s dramatic growth “has come at a high human cost – with unpaid work, unachievable targets, and high-staff turnover.”

As of this writing, the FCA has not made any determination about whether Revolut’s changeover of its sanctions compliance system last year involved a compliance breakdown.  At a minimum, other companies should treat this situation as a reminder that whenever they need to revise or test any compliance system, such as anti-money laundering or sanctions, that require constant screening of specific financial transactions, they need to be certain that they do not lose transaction data or fail to review those data timely in order to prevent processing prohibited transactions.

In his post, Storonsky wrote that although they reverted to their existing controls for a time, they “conducted a thorough review of all transactions that were processed during this time” and found no breaches.  Storonsky, however, did not specify how promptly that review occurred.  Even if the facts bear out Storonsky’s statement that they found no breaches, the FCA will undoubtedly want to determine whether there were significant delays in that review that could have allowed prohibited transactions to clear through Revolut’s app.

Storonsky’s statements about O’Higgins’s resignation also warrant a closer look.  At several points in his post, he used conditional, perfect, and future tenses to refer to that action (emphasis supplied):

  • “Yesterday, it was reported that my friend, Peter O’Higgins, would be stepping down as our Chief Financial Officer . . . .”
  • “ . . . Peter has decided to step down on the basis . . . .”
  • “ . . . myself and the wider team will be sad to see Peter go . . . .”

If, as The Telegraph reported, O’Higgins quit Revolut at the start of 2019, these statements by Storonsky are needlessly misleading.  Regardless of the reasons for a senior executive’s departure, if an executive has in fact left, the company needs to inform the public (and potentially regulators) promptly that he or she has departed, and not to imply that the departure is a future event.  For Revolut to fail to report a C-level executive’s departure for a month or more, then to issue statements by its CEO that suggest the executive has not yet done so, can only invite additional scrutiny from regulators.

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