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Revolut Fined €3.5 Million for AML Failures: What It Means for Digital Banks

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The financial landscape has been changing rapidly, with digital banks such as Revolut emerging as key players in the sector. However, their rapid expansion has not been without challenges, especially when it comes to anti-money laundering (AML) compliance. Recently, Revolut, a UK-based fintech company, faced a significant blow from Lithuanian regulators, who imposed a hefty fine due to failings in the company’s money-laundering controls. This fine, amounting to €3.5 million, marks the largest financial penalty the company has faced so far, signaling the serious implications of non-compliance in the increasingly stringent regulatory environment.

Lithuanian regulators, under the authority of the Bank of Lithuania, have imposed a €3.5 million fine on Revolut following their investigation into the company’s money-laundering procedures. According to the Bank of Lithuania, the fintech failed to effectively monitor business relationships and transactions, which ultimately led to the improper identification of suspicious monetary activities. This failure to identify and flag potentially illegal transactions formed the basis of the fine.

In its announcement, the Bank of Lithuania emphasized that these lapses in Revolut’s systems resulted in the company not always detecting suspicious monetary operations or transactions conducted by customers. As a result, the company did not meet the required standards set out under Lithuanian anti-money laundering laws, triggering the regulatory action.

Despite the severity of the fine, Revolut has maintained that it has been proactive in addressing the issues identified by the regulator. The company expressed its commitment to ensuring the highest standards of regulatory compliance moving forward and stated that it had already taken immediate steps to rectify the deficiencies.

Previous Regulatory Scrutiny and the £70,000 Fine

The recent fine is not the first instance of regulatory action taken against Revolut. In 2022, the Bank of Lithuania had already imposed a €70,000 fine on the company for failing to submit its financial statements on time. This issue, while unrelated to money laundering, highlighted the company’s struggle to meet certain regulatory requirements.

Revolut, which was valued at $45 billion at its last funding round, has grown rapidly since its inception. The company’s expansion across Europe and beyond has drawn significant attention, both from investors and regulators alike. However, its regulatory challenges, particularly in terms of compliance with financial crime prevention standards, have raised concerns about the robustness of its internal controls.

Revolut’s Response to the Fine

Following the fine, Revolut issued a statement emphasizing its commitment to the highest standards of regulatory compliance. The company confirmed that it had fully cooperated with the Bank of Lithuania during the investigation and had taken immediate action to address the deficiencies identified.

“We continue to invest to ensure we have best-in-class controls in the fight against financial crime,” Revolut said in its statement. This sentiment underscores the company’s dedication to improving its internal processes and staying ahead of potential risks in the financial crime landscape.

A source close to the company further clarified that, while the Bank of Lithuania had identified shortcomings in Revolut’s internal controls, there were no confirmed instances of money laundering related to these violations. The source also pointed out that the fine imposed represented less than 0.5% of the company’s revenue in 2023, which is significantly lower than the maximum possible fine of 10% of revenue for violations of Lithuanian AML laws.

Lessons for the Digital Banking Industry

Revolut’s fine is a stark reminder of the increasing regulatory scrutiny faced by digital banks, especially those that are scaling rapidly. With their novel business models and often complex technological systems, these fintech companies must ensure that their internal controls are able to keep up with the fast pace of growth and the evolving nature of financial crimes.

Digital banks, or neobanks, have come under increasing scrutiny in recent years as regulators raise concerns about the adequacy of their anti-money laundering checks. The UK’s Financial Conduct Authority (FCA), for instance, has issued warnings about the rising number of reports to the National Crime Agency (NCA) concerning potential financial crime risks at digital banks. In fact, the FCA’s concerns were echoed in a 2022 report that raised alarms about the ability of neobanks to adequately screen and monitor new customers during the onboarding process.

The case of Revolut and its fine could be seen as a precursor to what may be an ongoing trend of heightened regulatory action against digital banks that fail to demonstrate robust AML controls. As these institutions expand and increase their customer base, the pressure to meet regulatory requirements will only grow, requiring them to prioritize compliance in ways they may not have previously done.

The Role of Regulatory Authorities and Compliance Officers

Regulatory bodies such as the Bank of Lithuania and the FCA play a crucial role in maintaining the integrity of the financial system. Their actions send strong signals to the industry that non-compliance with anti-money laundering and other regulatory requirements will not be tolerated. This not only ensures that financial institutions maintain rigorous internal controls but also helps prevent financial crime, which can undermine the trust and stability of the banking sector.

For compliance officers, these developments serve as a reminder of the importance of staying vigilant and ensuring that their institutions adhere to the highest standards of compliance. Given the complexity and evolving nature of financial crime, it is essential for compliance teams to regularly update their systems, invest in new technologies, and collaborate with regulators to ensure their institutions remain compliant.

Revolut’s Path Forward: From Scrutiny to Expansion

Revolut’s journey toward becoming a fully-fledged bank has not been without challenges. While it secured a full European banking license in 2021, its application for a UK banking license has faced numerous hurdles, including concerns raised by its auditors. BDO, the company’s auditors, warned in 2023 that the design of Revolut’s IT system posed a risk that the company’s 2021 revenue had been “materially misstated.” These challenges have delayed the company’s UK banking license for over three years.

Despite these setbacks, Revolut is expected to exit its mobilisation stage in 2023, allowing it to complete the setup of its processes before launching as a fully operational bank in the UK later this year. The company has been working diligently to address the issues identified by its regulators, and its progress will likely serve as a case study for other fintechs aiming to navigate the regulatory maze and become fully licensed banks.

Conclusion: The Future of Digital Banking and AML Compliance

Revolut’s fine is a critical moment for both the company and the wider digital banking industry. It highlights the importance of maintaining strong anti-money laundering controls as fintechs expand and increase their global presence. The case serves as a warning to other digital banks that regulatory bodies are actively scrutinizing their operations, and failures in compliance can result in significant penalties.

As digital banks continue to grow and evolve, their ability to balance innovation with compliance will be critical in shaping their future success. The fintech sector must embrace regulatory requirements as part of their operational DNA, ensuring that they can offer secure, compliant financial services to customers while avoiding the costly consequences of non-compliance.