Earlier this year I talked to a number of investors who were SO smug about the fact that they "knew" that Revolut was about to get a UK bank license.

It’s now May, and they still haven’t.

I've never met Nik, and I don't have any unique insight into what's actually happening with Revolut's authorisation process. I don't talk with people at Revolut, and I don't talk with the regulators about Revolut.

But.

I have built a company (Griffin) that was able to obtain authorisation as a bank (yes, with restrictions for now - as is normal for new entrants). And I have a few thoughts to share.

1. Almost all VCs have only ever dealt [indirectly] with the FCA, and not the PRA. Banks are principally authorised by the PRA. The two are very different in approach. What works for one does not necessarily work for the other, and you need to satisfy both.

2. Both regulators place a lot of focus on good culture and governance. Revolut scores badly on both, in spite of attempts to paper over their issues.

Culture and governance are more than box-ticking exercises!

Having a code of conduct and a list of impressive names on the Board is irrelevant if management just goes and does whatever it wants (e.g. putting out a press release refuting your auditor's claims). The regulators notice this stuff and it does not look good!

3. Trying to apply pressure by bad-mouthing the regulators in the press is not a good strategy!!!

It is counter-productive - it will only irritate the regulators and raise questions as to your fitness and propriety. The quote from Nikhil Rathi (Chief Exec at the FCA) is pretty spicy w/r/t their views that a slow process means real regulatory concerns and that the FCA would be “much more forthright and public about saying that in future”.

But also, authorisation is just the beginning! If you want to run a growing business, you need to MAINTAIN good relationships. Otherwise...you end up like Solaris Bank or Cross River Bank (i.e. being told you can't take on any new customers).

Authorisation at the cost of 0% growth is a pyrrhic victory!

4. A lot of VCs are naive about how savvy of a political operator you need to be in order to manage a regulated firm. You can charge in with a lot of money and sharp elbows, but it's like quicksand...the more you struggle, the more stuck you get.

The problem is that assessing management teams for how good they are at navigating regulatory environments is not a skill that most VCs have. Which is unfortunate. They worry about taking on regulatory risk - but most of that regulatory risk is actually team risk, they just don't know how to assess it.

xo -

- D

Thanks for reading David’s Substack! Subscribe for free to receive new posts and support my work.