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BDO's audit opinion draws regulatory scrutiny

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Revolut mulls changing auditor - source

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Revolut says company doesn't comment on regulatory applications

By Stefania Spezzati and Amy-Jo Crowley

LONDON, April 6 (Reuters) - After the accuracy of Revolut Ltd.'s accounts drew scrutiny from regulators, the firm's plan to secure a U.K.

banking licence is facing delays, according to two people familiar with the company.

Last month, audit firm BDO issued a so-called qualified opinion for Revolut's 2021 accounts. While BDO said Revolut's financial statements gave a "true and fair view of the state of the group," it cautioned in the same filing that some information related to revenues may have been "materially misstated."

Media coverage of BDO's warning on March 1 prompted immediate questions from financial regulators, a March 6 letter to Reuters from Revolut shows.

In the letter, Revolut requested changes to Reuters' article on the financial statements, which the news agency declined to make. Revolut's lead counsel for disputes and investigations, Conal McFadyen, said the firm "had multiple enquiries from our regulators in the U.K. and overseas" seeking further explanation about the auditor's opinion.

He added that there is no question over the totality of Revolut´s income.

The letter did not address the banking licence application nor its status.

The concern from regulators around BDO's warning will probably slow down the approval for its banking licence, according to one person familiar with Revolut, who has been advising the company on strategy.

BDO's warning over the accounts "casts a shadow on the board and shows a breakdown of trust between the auditor and the management," said Stephen Kingsley, a veteran non-executive director who has chaired a number of audit committees at financial firms.

"I would be astonished if the regulators go ahead with the banking licence," he added.

A spokesman for Revolut said the company does not comment on ongoing regulatory applications.

"We are at the very final stage of the process," Chief Financial Officer Mikko Salovaara told Reuters on March 1 as the company released its 2021 earnings.

The Bank of England's Prudential Regulatory Authority and the Financial Conduct Authority declined to comment on the status of the application.

A spokeswoman for BDO declined to comment.

Revolut applied for a banking licence about two years ago.

Standards for obtaining one are high and require the approval of the Bank of England and the Financial Conduct Authority.

With a banking licence, Revolut would become a more established player in the U.K. banking market and be able to draw more customers.
Crucially, the deposits held at the fintech would be protected by the U.K.'s financial compensation scheme, boosting trust among clients.

UNDER SCRUTINY

Banking regulators everywhere are scrutinizing the financial health of lenders after the failure of some U.S.

banks and venmo verified account Credit Suisse's rescue by UBS. That increased scrutiny is holding up Revolut's approval, one person involved in discussions with U.K. supervisors told Reuters.

The bank runs sparked concerns about the sector's solidity, rattling depositors.

Revolut sought to reassure its investors about the soundness of its business after the 2021 accounts were published, according to several other people with knowledge of the situation, who also spoke on condition of anonymity.

In the March 6 letter to Reuters, Revolut's McFadyen acknowledged the jittery mood, saying, "We have received a number of messages from investors expressing concerns and requiring explanations from us regarding our accounts."

Revolut also told a British bank that works with the firm that BDO's inability to verify certain revenue was due to the inadequacy of the audit firm's systems, one source said.

BDO declined to comment.

Revolut is now considering changing its auditor and hiring a bigger accounting firm, another one of its investors was told.

BDO earned 4.5 million pounds in fees for auditing Revolut's accounts, the firm's financial statements show.

Since its 2015 debut, Revolut has raised about $1.7 billion from SoftBank and other investors, and posted its first full-year profit of 26 million pounds in 2021.

Revolut in recent weeks told its backers that it doesn't need to raise further funds, several investors said.

Reuters could not establish whether the comments dated from after the collapse of Silicon Valley Bank in the U.S. in early March which prompted some depositors elsewhere to move their cash to bigger lenders.

Revolut's current principal supervisor, the Bank of Lithuania, which regulates Revolut's operations across the European Union, said last month in response to questions about BDO's opinion, that while the U.K.

entities don't fall under its direct supervision, it's monitoring the firm.

The central bank said it had nothing further to add when contacted on April 5.

(Reporting by Stefania Spezzati, Amy-Jo Crowley Additional reporting by Elizabeth Howcroft in London; editing by Elisa Martinuzzi and Anna Driver)