Revolut’s auditor warned that the design of the fintech’s IT systems meant there was a risk that the bulk of its 2021 revenues were materially misstated even as it turned a profit for the first time that year.
The crypto boom helped Revolut report on Wednesday a net profit of £26mn in 2021 compared with a £223mn loss the previous year. Revenues in 2021 almost tripled to £636mn.
But the group’s auditor, BDO, issued a qualified opinion on Revolut’s overdue accounts because it had been unable to fully verify £477mn of revenues — including its foreign exchange and wealth department, which includes crypto.
Auditors said in their report into the accounts that they had been “unable to satisfy ourselves as to the completeness” of these revenues, meaning that references to the company’s revenues “may be materially misstated”.
Revolut has evolved from a low-fee money transfer service to offer bank accounts across Europe through its Lithuanian banking licence. It is also registered as an e-money institution in the UK. A funding round in the summer of 2021 valued the group at $33bn and ensured it did not have to return to the market as tech valuations crumbled last year.
Approximately a third of its revenues in 2021 came from its cryptocurrency trading business, Revolut said. The fintech first made a move into crypto in 2017, ahead of most of its rivals.
BDO had been pushing the fintech to improve its internal controls after the UK accounting regulator, the Financial Reporting Council, found there was an “unacceptably high” risk of “material misstatement” in its 2020 accounts.
The FRC findings, revealed by the Financial Times in September, included that BDO’s 2020 audit had an “inadequate” approach to revenue recognition.
Revolut’s chief financial officer Mikko Salovaara told the FT on Wednesday that the company’s IT systems had failed to keep up with the pace of growth.
“We think that 2021 is a one-off where we needed to do that upgrade,” he said. “For 2022, we expect a much more normal audit cycle, although it’s still going to be pushed a bit into the first half of the year.”
BDO said in its report on the accounts that because it had been unable to rely on Revolut’s IT systems and controls throughout 2021, it had resorted to other methods such as verifying cash balances and cash in client accounts. It was forced to use those procedures because no reliable documentary evidence of the transactions was produced or maintained outside of the IT system. Such an approach would normally require an auditor to check millions of individual transactions and contact counterparties but would not reveal issues such as missing transactions.
The auditor did not raise any warning on Revolut’s ability to continue as a going concern and said it had verified 100 per cent of cash balances held on behalf of customers with third parties.
Revolut said the issue with its IT systems “was remedied in 2021” and it did “not foresee that our [2022] accounts would reflect this limitation”.
The group’s retail customers jumped almost 50 per cent to 16.4mn in 2021. It said that figure had grown to more than 27mn in 2023. Revenues climbed further in 2022, Revolut said, hitting more than £850mn. The group did not disclose its profitability last year.
“Our profitability in 2021 was despite the economy suffering a significant prolonged shock from global lockdowns, continued travel bans and Covid-19 effects,” said chief executive Nik Storonsky. “At the same time, the accelerated shift to digital services and remote working boosted our number of customers and the amount that they used our app.”
Revolut has suffered significant growing pains in its quest to challenge traditional banks. Insiders have revealed a hard-charging culture and the company was hit by the departures of senior compliance staff in 2022.
Revolut was required to submit accounts for the year ending December 2021 to Companies House in September 2022. The fintech was then given an extension until the end of December — a deadline it had also failed to meet.
Revolut has been seeking a UK banking licence since early 2021, which could boost profitability, particularly as higher interest rates make deposits more valuable. It could also help convince regulators in other markets to offer it licences.
Salovaara said that its licence was coming “very soon, imminent[ly], any day now”, adding that Revolut felt it had good relationships with regulators.
The boost for Revolut from crypto is unlikely to have been sustained last year, when prices for multiple digital currencies plunged and FTX, one of the most-hyped players in the nascent industry, collapsed. Salovaara said that crypto made up less than 10 per cent of revenues in 2022.