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UK fintech Revolut off to a rough start in Lithuania

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Revolut’s Nikolay Storonsky (left)

Linas Jegelevičius for the BNN

Initially embraced and encouraged by both the Central Bank and the Government, Revolut, the UK digital banking startup, has now found itself in an ominous situation in Lithuania- Lithuania’s prime minister Saulius Skvernelis admitted this week that Lithuania might «probably» have problems with the UK fintech startup.

The PM’s statement followed recent revelations that different shady and illicit transactions may have been allowed by Revolut and that the owner of the company is linked with Russia.

The London-based startup that allows one to set up an app-based current account in 60 seconds, spend abroad in over 130 currencies with no fees using a contactless MasterCard or Visa debit card, in Lithuania has to stave off not only the accusations, but also to deal with its perhaps biggest nemesis here -Stasys Janeliūnas, chairman of Lithuanian Parliament’s Budget and Finance Committee (BFC) and, all agree, the staunchest opponent of the banking newcomer.

«The company was never forthcoming and is lacking transparency,» the BFC chief has been insisting ever since.

This week Janeliūnas poured more gas on the fire, alleging that Vitas Vasiliauskas, chief officer of Lithuania’s Central Bank, had «pressured» Alminas Mačiulis, chairman of the Government’s commission tasked with reviewing of state’s strategic deals, to give Revolut a green light in the country.

The accusation was swiftly denied and denounced by Vasiliauskas, yet a source knowledgeable of the discussion behind a closed-door BFC sitting on Wednesday, March 27, claims that a new round of scrutiny awaits Revolut in Lithuania. And potentially revocation of its banking license, too?

With the accusation against Mačiulis, PM Skvernelis stepped in, saying he had no «ground» to believe Janeliūnas claims and doubt Mačiulis’ suitability as the Commission’s head.

Nevertheless, the prime minister acknowledged that his Government might now face «a problem», Revolut.

«Well, unfortunately, but, in my mind, it wasn’t done in compliance with our…No, it conforms to the laws, the formal side. But those risks which exist, so one or the other decision will have to be made. The license has been issued, and the «ceiling” is in place on how much they can grow…over the next two years. But there are no restrictions afterwards, and now their structure, their goals, their shareholders, all of that is raising questions today,» Skvernelis told the business daily Verslo žinios this week.

The inception of Revolut’s activity was promising however. Last December, Lithuania became the first European country to grant a specialised bank license to Revolut.

It became possible after Lithuania passed amendments in early 2017 to its banking laws. Banks of such a type must conform to all requirements for banks but they have a lower authorised capital threshold of at least 1 million euros, and there are also restrictions for providing investment services.

As a result, Revolut opened its office in Vilnius later in 2017. The new office is tasked with accelerating ambitious growth targets across the entire Baltics and beyond.

However, the fintech company got mired in a slew of suspicions and accusations from day one, most of which have to do with its ostensible insufficient transparency and alleged ties with Russia.

It was the Lithuanian Radio and Television (LRT) that reported in February that the father of Revolut CEO Nikolay Storonsky works for a company of Russia’s gas group Gazprom. The public broadcaster also raised questions as to DST Global’s possible links to the Kremlin and the location of Revolut servers.

Storonsky said in an open letter that Revolut’s severs are only located in the EU and the UK.

The CEO said DST Global, a Hong Kong-based fund that has invested in the startup, does not have any investors from Russia. One of the fund’s investors, Russia-born Yuri Milner, who is linked by the media to the Kremlin, is of Jewish nationality and lives in the United States.

He added that DST Global is a passive minority investor that has no influence on the company’s decisions.

He however did not deny the claim that his father, Nikolay M. Storonsky, works for a company owned by Russia’s state-controlled gas group Gazprom. Nevertheless, he repudiated having any links to Russian authorities, saying that his company poses no threat to the state of Lithuania.

However, Janeliūnas, who is seen as a man from the close circle to Ramūnas Karbauskis, chairman of the ruling Farmers and Greens Union,has been seeing Revolut in a different light from scratch.

The suspicion of Revolut’s non-sufficient credibility is especially painful to Vasiliauskas, the CEO of the Central Bank, who has said on several occasions that what he found «most strange» about the whole situation was that doubts (about the credibility of Revolut) emerged after it was granted the license.

«The licensing process was really long and we worked with all the necessary authorities in the process both in Lithuania and abroad. Revolut is an international group and, therefore, we worked with a number of foreign supervisory authorities and checked the information that is now being publicly discussed,» Vasiliauskas defended his decision.

«We looked at all aspects and gave a positive opinion, after which the European Central Bank issued Revolut with the banking license,»he added.

Vasiliauskas also emphasised that doubts being raised about Revolut’s credibility at the political level are detrimentally affecting the image of Lithuania which cherishes ambitions of becoming Eastern Europe’s fintech hub.

«We need to think not only about certain public relations, but also about what this brings to Lithuania,» he said.

Vasiliauskas admitted that Lithuania, which positions itself as an attractive jurisdiction for fintech operations, will likely attract not only new players, but additional risks as well, adding that the central bank is getting ready for that.

«In don’t think we can expect to completely avoid incidents, because every financial market participant has a certain risk element… The question we have to answer here is whether we want a breakthrough in this area or we continue to live with banks of several colours,» he said.

Revolut intended to initially focus on Lithuania as its launching pad, where it is said to have  about 150,000 customers, before expanding into larger markets including the UK, France and Poland later next year. However, having been off to a rough start in Lithuania, it may need to reshuffle its expansions plans.

Neither Revolut, nor the Central Bank of Lithuania responded to BNN query for a comment.


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