The move will see Irish customers of Revolut temporarily regulated by Lithuania's Central Bank while the fintech progresses with its application for an e-money licence from the Central Bank of Ireland.
With all the focus on Covid over the past few months one huge upcoming event has gone under the radar recently; Brexit.
The UK officially left the EU on 31st January 2020 but agreed to an 11-month transition period during which the relationship between the UK and the EU remained largely unchanged.
The hope was that this period could be used to agree a deal covering everything from fishing to trade, and of course financial services.
However during often acrimonious talks, little has been agreed between both sides and the UK is set to crash out of the EU on 31st December.
This will have an impact on consumers and business all over Ireland and in the first sign perhaps of the chaos to come, Revolut has announced that it is temporarily moving its customers to its Lithuanian business.
Read on for what it all means...
How is Revolut currently regulated?
Revolut is currently licensed in the UK by the Financial Conduct Authority (FCA).
It has an electronic money or e-money licence in the UK, not a banking licence, and used to use that same licence to operate in Ireland under EU passporting rules. These passporting rules allow a bank or financial institution which is licensed in one EU country to ‘passport’ or transfer the licence to another country without having to get full regulatory approval all over again.
However as there is no sign of an agreement between the UK and the EU on practically anything right now, including financial services, Revolut's UK e-money licence will no longer be valid in Ireland come the end of the year.
So it’s been forced to act.
What will happen?
From December Revolut will begin migrating its over one million Irish customers to its e-money licensed business in Lithuania, an EU country, where it also incidentally has a banking licence. This means customers of Revolut will now be regulated by Lithuania's Central Bank and not the FCA.
However customers are being transferred to the Lithuanian e-money business, not to its Lithuanian bank business, which lies with a separate entity.
Also, as an electronic money institution, Revolut is: “required to safeguard money we receive from (or for) customers... Safeguarding means that we deposit the money we receive from you (or for you) into a client money bank account. The money in these client accounts is held by us on your behalf. We have client accounts with a range of large banks (that meet our and our regulator's requirements)."
In the case of Irish customers, the client money bank account used to be with Lloyds in the UK and Revolut, in theory, has no access to this money.
Going forward, the client money bank account or holding account is likely to be with JP Morgan.
What will the impact be?
The biggest impact is that customers' IBAN numbers are going to change.
For most Revolut customers who top-up through the app by using their main bank’s debit card, this won’t be an issue.
However for those who get paid directly into their account by their employer or have direct debits or standing orders on the account, there will be a change. This is because all Revolut IBANs currently start with a ‘GB’ as this is what is used for all UK-based accounts. This will now change to LT.
This means if you are getting paid into your account by your employer you must let them know that your account details have changed. You must also update any direct debits or standing orders you have, otherwise they could bounce and you could be hit with referral fees, which will also place your credit rating at risk.
Revolut says it will notify customers in advance that their IBAN will change, and give them their new IBAN details on the day they are migrated.
Other than this (albeit big) change, everything else remains the same for customers - no monthly account management fees, no charge for contactless transactions or direct debits, and no foreign exchange fees on transactions outside the Eurozone up to a limit of €1,000 a month.
Revolut is working on getting an e-money licence from the Central Bank of Ireland (CBI), which is expected to be approved in the coming year or so, though no firm timelines have been agreed.
When this happens Revolut customers in Ireland will be migrated back over to the Irish business and be protected and regulated by the CBI, but it will mean that their IBAN numbers will change once again.
Recent Revolut news
Revolut has made headlines numerous times since announcing it was moving its Irish customers to its Lithuanian business. If you missed any of Revolut’s updates, take a look at the following:
- In December 2020 Revolut launched the desktop version of its popular app.
- Revolut caused some controversy among its customers back in February, when it announced it was raising fees and charges for the second time in less than a year.
- At the start of June Revolut announced that its Irish CEO was set to lead its European operations.
- A few weeks later Revolut removed its restrictive top-up limit of €40 on standard Revolut Junior accounts.
- More recently in August Revolut launched its new travel product, Stays, which allows customers to book accommodation for their latest holiday and get up to 10% instant cashback.
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Digital banks, like Revolut, are becoming increasingly popular among consumers as they offer more features than traditional banks and they have fewer fees.
Revolut and N26 are undoubtedly two of the most popular digital banks at the moment. We recently did a thorough comparison and review of both, which may be of interest to those looking to find the right digital bank. Alternatively, you can listen to our podcast episode on N26 and Revolut here.
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