Post by Benhttps://www.bbc.com/news/business-63796738
'I had £8,000 stolen but Revolut won't refund it'
I use both "banks" (I believe Revolut doesn't have a UK
banking license, and Wise is technically an EMI).
How safe are deposits with them?
There's no particular reason to think that deposits are unsafe, in the way
that deposits with FTX were unsafe, although it's possible that there may be
reasons why they are unsafe in the sense that deposits with Icelandic banks
a decade or so ago were unsafe. That is, Revolut is not a scam, a fraud or a
fantasy, but it nonetheless may be vulnerable to external forces in a way
that a larger, more established financial institution would not be, and if
they did suffer in that way then deposits would not be protected by the UK
Financial Services Compensation Scheme.
However, it's important to bear in mind that the victims mentioned in the
article did not lose money as a result of any flaw in Revolut's systems. Two
were defrauded by someone who persuaded them to install malicious software
on ther PC and then duped them into transferring money from her Revolut
account to the fraudster's account (otherwise known as Authorised Push
Payment, or APP, fraud). As that article points out, this did trigger alarms
on Revolut's systems on at least one of those occasions, but the victim
ignored them. It's hard to see how Revolut could have done any more to
prevent the fraud, and it's certainly not their fault that her gullibility
was exploited in that way.
Post by BenAre they covered by the Financial Services Compensation Scheme?
No, as above. But this wouldn't have been relevant in this case, because the
victims' loss was not caused by a failure at Revolut.
Post by BenCan complaints about them be handled by the Financial Ombudsman?
Yes, because the Financial Ombudsman has jurisdiction over any UK-based
financial services provider whether or not they are registered as a bank[1].
But the FO would not necessarily find in favour of the victim if the
investigator agreed that Revolut was not at fault.
The specific issue here is that financial services providers which are
registered as banks in the UK are obliged to adhere to a code of conduct.
This, in turn, generally obliges them to refund anyone who is defrauded in
the way that this particular victim was, even if the bank was not in any way
at fault.
That, obviously, imposes costs on the banks, as they will, in effect, be
paying the costs of a crime committed against one of their customers that
they could not reasonably prevent. One of the reasons for this requirement
is to encourage the banks to have robust systems in place to help their
customers avoid being the victim of APP fraud. And to some extent that has
been effective. But, still, there will inevitably be occasions where,
despite the best efforts of the banks, their customers do get defrauded and
the bank then ends up picking up the tab even though the bank did everything
it possibly could to prevent it.
Equally obviously, the cost of meeting this obligation has to come from
somewhere, and where it comes from is everybody's account - you either pay
more in interest on a loan, or get less interst on a deposit, or pay more in
charges, etc. In effect, the bank is insuring all its customers against APP
fraud, and every customer is contributing to the insurance premium.
Unregistered banks don't have that obligation, and therefore don't have that
cost. And, therefore, their charges and interest rates can be more
competitive because their customers aren't paying the premium. Which is
fine, so long as the customer doesn't get defrauded.
Part of the problem, though, is that customers who are attracted to the
likes of Revolut are those who are focussed solely on the financial benefits
offered by the better interest rates and charges, and disregard the
potential risks. I'm not saying that's true of all of them, I'm sure there
are a lot of people who are very risk-aware and have made a calculated
decision that the slight increase in risk is justified for the financial
benefits. But those people would also be unlikely to be victims of APP fraud
in the first place. The kind of people who are vulnerable to APP fraud are
precisely those who should not be using unregistered banks, but they are
also precisely the people who will only look at the headline figures and
fail to consider the reasons why they're better than those offered by the
registered banks.
I don't think there's a simple solution to that. Even unregistered banks do
still have a duty of care to their customers, and in one of the cases in the
article Revolut did partially compensate the victim because they recognised
that they hadn't issued sufficient warnings about the transactions. But at
some point, people do need to be allowed to take their own risks in pursuit
of better rewards.
I personally wouldn't use Revolut, because I won't use any financial
services provider that's app-only. For me, that's the biggest risk factor,
because doing it all on the app makes it harder to get a good overview of
what's going on. It also leaves you incredibly vulnerable to the loss of
your phone (as one of the victims in the article discovered). But I wouldn't
want to stop other people choosing that kind of service, if they're
comfortable with it and understand how to use it.
[1] Here, for example, is a decison on a complaint against Revolut:
https://www.financial-ombudsman.org.uk/decision/DRN-3645433.pdf
Mark