Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It should go without saying that financial institutions need to be extremely well run. Banks, payment companies and clearing houses have to demonstrate competence, skill and strong internal processes to be trusted to move money around the financial system. In this context, losing track of what is owed is — to say the least — not a good look.
Yet that is what happened to Bank of London, one of the UK’s neobanks and a rare unicorn in the local fintech scene. It was hit with a winding-up petition last week from UK tax authority HMRC over unpaid debt.
The official explanation is that the bank, which says it takes in corporate deposits and operates as a clearing house, simply committed a clerical error. Communication about a relatively small unpaid tax bill, attributable to the group’s holding company, got lost internally. The company may have been focused on its successful £42mn fundraise, which closed in August. When it became aware of the bill, the balance was quickly settled.
Such snafus are not uncommon in start-ups. But while fast-growing companies may outrun their systems and processes, that is not something that should happen to a bank. Regulators at the Bank of England said so in 2020, before introducing new rules for neobanks. Keeping track of things, via systems and processes, is rather integral to banking. There is little leeway for administrative oversights.
Bank of London should at least be able to explain exactly how the tax bill went astray and how that hole has been fixed. It may also need to reassure customers and regulators that it has not focused on growth and glitz over crucial plumbing. The board was heavy on grandees. Its “Insta-banker” boss was a red flag. The company’s decision to replace Instagram-friendly chief executive Anthony Watson with Stephen Bell, who has a risk and compliance background, is a step in the right direction.
More broadly, the bank’s stumble highlights the conflict that financial regulators face. They are keen to encourage new entrants in the interests of a dynamic market place — and have authorised almost 40 start-up UK banks since 2013. At the same time, they need to uphold high standards. Their “training wheels” authorisation process, in which limits to a company’s operations are gradually removed, is helpful. But it will not eliminate the trade-off between unleashing new challengers and accepting that mistakes will follow. When dealing with the financial system’s underpinnings, they should err on the side of caution.
camilla.palladino@ft.com
