Shortly after Silicon Valley bank was shut by US regulators, e-money firm Revolut prevented a UK start-up from making a large cash withdrawal, the start-up firm’s venture capital (VC) backer said last night.
The VC firm, SGH Capital, invests in more than 100 early and mid-stage companies across the US and Europe.
Yesterday evening, SGH tweeted that “we are seeing Revolut blocking withdrawals from larger accounts pretexting ‘profile reviews’ – slow down started on Friday March 10th post the SVB meltdown.”
Details of frozen payment
Today, SGH’s founding partner, Alexandre Azoulay, gave me further details. He said that one of his firm’s portfolio companies, a UK start-up, had yesterday afternoon seen a withdrawal request for over $100k “frozen for unknown reasons”.
“The entire balance of the company has been frozen and a request to shut down the account has been denied in writing,” Azoulay said.
He said that the start-up had recently completed a $2m fundraising and had placed $150k of those funds with Revolut.
“When our client placed a withdrawal request for over $100k using the Revolut app at 3.16pm UK time on Friday, the app froze the request,” Azoulay said.
“So our client opened a live chat with Revolut. The conversation went from one agent to another, then a third, and then was escalated after half an hour. Then Revolut told our client it needs to do a ‘profile review’, which would take up to 14 days,” Azoulay explained.
“It’s possible that Revolut decided to do a know-your-customer (KYC) check at 3.16pm yesterday,” Azoulay said. “But ten days ago the funds arrived in the account, all the contracts were shared and everything was cool.”
Difference between e-money firms and banks
In the UK, Revolut and other e-money institutions (EMIs) are not banks and their clients are not protected by state deposit insurance.
Instead, client funds are supposed to be protected by a separate, ‘safeguarding’ regime.
“Entrepreneurs should know that Revolut doesn’t offer deposit insurance,” Azoulay told me.
Last week I uncovered significant holes in the UK’s safeguarding regime. These included a failure by the UK’s Financial Conduct Authority (FCA) to monitor whether the safeguarding audits it required under guidance published in 2020 had been completed. The FCA also appeared to have no sanctions regime for non-completion of the audit.
Meanwhile, the repercussions of the failure of Silicon Valley, the second largest bank collapse in US history, are spreading.
Last night the Bank of England said it was placing the UK subsidiary of the bank into insolvency. Earlier in the day SVB UK had attempted to borrow £1.9bn at the Bank of England’s discount window.
“A bank insolvency procedure would mean that eligible depositors are paid out by the Financial Services Compensation Scheme as quickly as possible up to the protected limit of £85,000 or up to £170,000 for joint accounts,” the Bank of England said, announcing the insolvency process.
“SVB UK’s other assets and liabilities would be managed in the insolvency by the bank liquidators and recoveries distributed to its creditors,” the Bank said.
Under the UK’s bank insolvency regime, uninsured deposits (those in excess of £85,000 per account) are subject to a so-called ‘bail-in’ regime. A hierarchy of creditors sets out the order in which the shareholders, creditors and depositors of a company receive recoveries from the insolvency process.
I approached Revolut for comment regarding the frozen payment reported by SGH Capital. The firm told me:
“We are categorically not blocking any payments on some alternative pretext. We may on occasion place a block on an account if it’s facing some sort of financial crime or screening check. If an account is undergoing some screening or fincrime process then allowing the business to transfer the funds out would be in breach of our regulatory obligations.”
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