Breakthrough in shareholder battle with SoftBank as UK license talks stall

Revolut is locked in a battle with major shareholder SoftBank after regulators told the UK’s largest private technology company it must simplify its ownership to win a long-delayed banking licence.

The Japanese investor demanded compensation for giving up its preferred share class, which the Bank of England made a condition for granting the key approval, according to five people with knowledge of the situation.

Revolut needs the license to expand into the UK, US, Australia and Singapore. Without it, the payments group cannot borrow or benefit from the UK’s deposit insurance scheme.

An escalating battle between Revolut, SoftBank and UK regulators threatens to turn political as the government fears London will lose its status as Europe’s main financial services center after Brexit.

UK Business Secretary Kemi Badenoch has arranged a meeting with Revolut’s top executives, including founder Nik Storonsky, next week amid fears the company could relocate its headquarters, two people familiar with the matter said.

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Storonsky expressed frustration with the two-and-a-half-year wait for a banking license and criticized the UK’s “extremely bureaucratic regulator” in an interview. He also took aim at the London Stock Exchange, telling The Times that it was “much less liquid, so I just don’t see the point” of a London IPO.

The application is already complicated by the fact that Revolut has not received a clear certificate from its auditors about its 2021 accounts.

Auditor BDO warned in March that it was unable to fully control the £477m of revenue recorded in 2021, including income from foreign exchange and cryptocurrencies.

The Bank of England’s prudential regulator subsequently warned the government that it was prepared to reject the application before continuing negotiations with Revolut. Since March, Revolut has lost both its UK bank chief executive and its group finance director.

The fintech is now aiming to publish its 2022 accounts as early as next month, hoping for approval from auditors after building new systems to better document exchanges and money flows around the app.

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Revolut is separately trying to reach an agreement with SoftBank, turning to the Japanese group’s founder, Masa Son, to break the deadlock. As of July 2021, SoftBank’s Vision Fund had $2,800 million under management Series E fundraiser which valued Revolut at $33 billion, an increase of $8 billion after the meeting between Son and Storonsky.

The PRA has told Revolut it will have to break up its six share classes, according to people familiar with the matter. The structure is a legacy of the start-up’s several funding rounds since its founding in 2015.

But while most investors agreed to exchange their shares for common stock, SoftBank demanded double the amount of common stock offered by Revolut in exchange for giving up pre-emptive rights associated with its current share class.

The PRA is also asking Revolut to expand its group-wide board and increase its technology expertise.

Revolut declined to comment on its request or discussions with shareholders. Neither the PRA nor SoftBank declined to comment.

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Revolut has 30 million customers worldwide and is expected to generate more than £850 million in revenue in 2022. Around 20 per cent of this was obtained in the UK from around 6 million customers.

The fintech has been criticized for its harsh fee-setting culture, which results in high staff turnover. The Financial Control Authority investigated it in 2021. Its risk management and compliance systems were reviewed in 2020.

Additional reporting by Akila Quinio