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Revolut and SoftBank end share dispute, paving way for UK banking licence

Revolut reaches agreement with SoftBank to simplify its ownership structure

Revolut, the UK’s most valuable fintech company, has reached an agreement with SoftBank to simplify its ownership structure in a significant breakthrough for the UK’s financial technology sector. This long-awaited resolution paves the way for Revolut to finally obtain a coveted banking licence from the Bank of England.

The protracted negotiations between Revolut and SoftBank, internally dubbed “Project Swan”, revolved around the restructuring of shares, with SoftBank initially demanding substantial compensation for relinquishing its priority class of shares. The crux of the issue lay in the Bank of England’s regulatory requirement that Revolut collapse its complex structure of six share classes into one unified type. This condition was a crucial prerequisite for issuing a banking licence, which Revolut had applied for over two and a half years ago.

SoftBank, which led an $800 million funding round in 2021 that valued Revolut at $33 billion, wanted compensation for giving up the protections attached to its tranche of shares. The standoff was one of the reasons Revolut could not immediately get a banking licence.

However, the agreement reached last week does not involve any additional share issuance to SoftBank and will not have a financial impact on Revolut. This is a significant relief for the fintech company, considering SoftBank’s initial demand for a substantial number of common shares. Although the specific terms of the deal remain undisclosed, it signifies a positive step forward for Revolut’s banking aspirations.

Revolut and SoftBank end share dispute, paving way for UK banking licence

Revolut faces other regulatory hurdles before securing UK banking licence

Despite resolving the share structure issue, other challenges lie ahead for Revolut. The company must still address regulatory concerns about its financial accounts and internal systems. The delay in filing accounts for 2022 has drawn admonishments from regulators, but Revolut has assured them that the 2022 accounts will be finalised and submitted without qualifications.

Revolut’s pursuit of a UK banking licence has faced various obstacles and delays, including concerns raised by the Financial Conduct Authority (FCA) regarding auditing, compliance, and corporate culture issues. Earlier reports had also indicated that the FCA was investigating whether Revolut allowed funds to leave accounts flagged as suspicious by the National Crime Agency.

Furthermore, the company had faced delays in filing its annual accounts, with the 2021 accounts being filed only in March and concerns raised by the auditor regarding verifying revenue due to the configuration of Revolut’s internal IT systems.

Revolut’s quest for a UK banking licence is crucial for its expansion plans, particularly in the US, Australia, and Singapore, where it aims to leverage the legitimacy conferred by approval from a significant national regulator. The BoE’s regulatory arm is the lead agency for approving banking licence applications in the country, which must also be signed off by the FCA.

Revolut claims to be at the “finish line” of winning a UK banking licence

Revolut, which was founded in 2015 by former Credit Suisse trader Nik Storonsky and former Deutsche Bank software engineer Vlad Yatsenko, offers a range of digital financial services such as money transfers, currency exchange, crypto trading, stock trading, budgeting tools, and insurance products. It has over 16 million customers worldwide and claims to process more than 150 million transactions per month.

Revolut says revenues topped £850 million in the year to December 2022. It also reported its first annual profit of £123 million before tax, compared with a loss of £107 million in 2020. The company attributed its improved performance to strong growth in customer numbers, product diversification, and cost control.

Revolut has been operating under an e-money licence from the FCA, which allows it to hold customer funds but not lend them out or pay interest. A full UK banking licence would enable Revolut to offer more services such as overdrafts, loans, savings accounts, and deposit protection. It would also reduce its reliance on third-party providers and lower its operational costs.

In March 2023, Storonsky said that Revolut was at the “finish line” of winning a UK banking licence and expected to receive it within weeks. However, he also acknowledged that there were “a lot of things” that needed to be done before getting the green light from regulators.

Storonsky said that he was confident that Revolut would be able to meet all the requirements and standards set by the BoE and the FCA. He also said that he was not worried about competition from other challenger banks such as Monzo and Starling, which already have UK banking licences. He said that Revolut’s advantage was its global presence and its ability to offer a wider range of products than its rivals.

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