UK neobank Revolut, which has onboarded over 4 million customers since its launch in 2015, has been accused of failing to block potentially suspicious transactions on its platform, according to the Telegraph.
From July to September of last year, Revolut turned off an automated system designed to stop dubious money transfers, which could have resulted in illegal transactions passing through the bank’s system. Revolut internally investigated the issue in late 2018, but only after a whistle-blower contacted Revolut’s board about it.
Tom Hambrett, head of legal at Revolut, told the UK’s Financial Conduct Authority (FCA) in September 2018 that its internal investigation concluded that the decision to turn off the transaction-halting mechanism was a mistake.
- Revolut’s system to detect illegal transfers was switched off after it wrongfully blocked transactions. Revolut decided to turn off the system after it made 8,000 false positive flags, resulting in legal transactions being blocked. It then changed to a compliance system that flags transactions, but doesn’t automatically disable them. On September 16, 2018, Revolut reactivated its previous system, and has since then introduced a completely new one. While the neobank contacted the FCA about the incident, it doesn’t believe that it’s broken any laws.
- This is not the first time Revolut has raised security concerns. In July 2018, the neobank had to inform the National Crime Agency (NCA) and the FCA about suspected illicit activity on its platform. This has raised questions about whether Revolut’s compliance checks are sufficient, with the latest incident only reinforcing these concerns. Additionally, this turmoil comes amid the government bodies in Lithuania calling for an unprecedented third investigation into the bank after granting it a banking license last year.
- Revolut has struggled to retain employees, especially compliance employees, which could have left it more vulnerable to illegal activity. Eighty percent of 147 former Revolut employees worked for the neobank for less than one year, per analysis from Wired. Additionally, Revolut lost two chief risk officers, its chief compliance officer, and two money laundering reporting officers over the past two years, according to the Telegraph. Further, it was reportedly trying to hire its third head of compliance in 18 months in August last year, per The Times. Revolut’s lack of compliance talent in particular could suggest the neobank struggled to safeguard against illicit activity, making it more susceptible to suspicious transfers.
Even if the FCA decides to not take action in response to the latest incident, Revolut would be wise to up its compliance processes. The fact that Revolut had to reach out to regulators twice in one year about security concerns indicates that it’s been struggling with compliance. Even if it will not be fined by the FCA for this incident, its reputation and consumer trust will likely suffer under the allegations.
Additionally, the FCA is still investigating a marketing campaign from Revolut, which may have misled consumers regarding the use of their data in an ad. With new neobanks cropping up regularly alongside many established players, including Monzo and N26, Revolut risks losing customers to the competition if it doesn’t realign its strategy to retain employees, prioritize compliance, and ensure that it remains sensitive to consumers’ data-privacy concerns before launching its next ad campaign.
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