Insights

Neobank Revolut Recognised as Crypto Asset Firm by FCA

October 28, 2022

Just last month, neobank and cryptoasset trading platform Revolut gained full registration from the UK’s Financial Conduct Authority (FCA) to lawfully offer crypto services in the UK - which is big news for emerging tech companies and regulation in this area. Our resident regulatory wizard Gareth Malna has stroked his beard and looked at the implications.  

What happened?

Revolut applied to the FCA for registration as a “crypto asset firm” to comply with the amended Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).  

Now, it’s official. They’re fully registered and are the 38th firm to be awarded a crypto asset registration by the FCA.  

What does this mean?

To put this news into context, in 2021 the FCA rejected circa 90% of applications for crypto asset registration in the name of consumer protection. The primary reason for rejecting applicants was a failure by them to show they had sufficient systems and controls in place to comply with the MLRs.  

Firms that went through the application process also saw the FCA take a very hands-on approach to the application review process by interviewing a significant number of them in person.  

But, Revolut has now successfully navigated that gauntlet.

In practical terms, this means that Revolut’s ability to provide crypto asset services now appears on the FCA’s Financial Services Register, (where anyone from the general public can find out more about what they do). Revolut was already authorised to provide payment and electronic money services but has now added this additional string to its bow.

And here’s how they did it: An FCA official was quoted saying that, “Revolut has agreed to a number of directions designed to ensure it has the systems and controls to meet the requirements of the money-laundering regulations.”  

The money laundering rules

A crypto asset provider is required to register with the FCA for the provision of crypto asset services where that provider carries on any of the following activities:

  • Exchanging crypto for crypto, or fiat for crypto.
  • Operating custodial wallets

The reason the registration regime exists is to allow the FCA to supervise firm’s compliance with the MLRs.  

The rules govern such things as:

  • The kind of due diligence that needs to be performed on customers.
  • The need for the firm to have and maintain a risk framework.
  • Record keeping and protection of data by the firm.
  • The need to appoint a Money Laundering Reporting Officer.
  • Disclosure obligations.
  • Transaction monitoring.
  • The need to make suspicious activity reports to the National Crime Agency.

So, anybody who uses the crypto asset trading functionality on the Revolut app can expect some level of due diligence checks to be carried out on them.

What about Revolut’s other activities?

None of this, of course, grants Revolut status as a licensed bank in the UK; something it has been keen on for many years. But, the tide may be turning on that too, with co-founder and CEO Nik Storonksy announcing that its application for a banking licence is “going very well” and is “almost there”.

To be recognised as a bank in the UK, you need to apply for a banking license with the Prudential Regulation Authority (PRA), the regulatory body for banks, headed by the Bank of England. Classification as a bank is a privileged and restricted concept and requires the firm to meet certain threshold conditions specific to the PRA and FCA respectively.  

“The PRA focuses on the safety and soundness of a firm. The FCA focuses on protecting consumers, protecting and enhancing the integrity of the UK financial system, and promoting effective competition in the interests of consumers.”

The PRA defines a bank as: “a firm with a Part 4A Permission to carry on the regulated activity of accepting deposits and is a credit institution, but is not a credit union, friendly society or a building society.”

“Part 4A Permission” is granted by the FCA and is an authorisation allowing the carrying on of activities which are related to specified investments, such as bonds, futures, swaps, options, debentures, shares and more. In short, yes, all banks require the FCA’s permission to be classed as such.

So, what is Revolut classed as?

Revolut is an e-money institution (EMI) – a digital business that takes money from its customers and stores it electronically in digital accounts. The e-money can then be used to make payments across different applications (for example, to direct debit Netflix for that all-important subscription).  

EMIs differ from banks because they do not lend the money they take from their customers. The e-money they take custody of is excluded from the definition of accepting deposits. Money taken by EMIs is also not protected by the Financial Services Compensation Scheme (FSCS) if the EMI fails. Instead, e-money is either:  

  • Segregated from the firm’s own money and placed in a safeguarded account with a regulated bank or the Bank of England.
  • Invested in secure, liquid assets and placed with an authorised custodian, or  
  • Guaranteed with an approved insurance policy.  

If an EMI fails, there is a greater risk of customers not being paid back in full and/or having to wait longer than seven days to get their money back.  

What might this mean for their customer base? Their competitors?

Customers will likely now feel reassured by the green light the FCA has given Revolut – it will serve to boost their reliability and credibility as a firm and may even encourage more traditional payment service providers to rethink their approach to crypto asset activities.  

Heralded previously as, “the UK’s most valuable fintech startup” CEO, Nik Storonsky has big plans for the business. We’re talking decentralised wallets, enabling deposits and withdrawals, and staking and lending services. Groovy.

Last year alone, Revolut:

  • Raised Series E funding of $800m, to continue to build the first global financial super app
  • Launched Stays, making it easy to book holidays directly from your Revolut app
  • Launched On-Demand Pay to manage expenses when you need to by withdrawing earned pay early

This year, they’ve launched several new products – to date, the all-new “Pro account” for income, payment and expense management for freelancers, gig workers and the self-employed, a hardware device that recognises in-person payments, and some say, they are even in competition with PayPal…  

Pass the popcorn...  

How can we help?

If you’re looking at this enviously and would like to explore crypto asset registration for your business, or if you’d like to apply to become an electronic money issuer, payment service provider or even a bank, let us know! We can help with the application process – it can be a long old slog, so let us do the hard bit so you can enjoy reaping the benefits sooner.  

If your business is delving into crypto, but you’re not sure whether you’re allowed to do what you do, ping us a message – it’s always worth assessing the situation before you blaze ahead. This is especially important as Web 3.0 and blockchain areas are still currently unregulated in many senses, and it’s a scary world out there when you can’t see the digital wood for the virtual trees.


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