TransferWise’s new banking partner was fined £1.3 million by a British regulator for what the regulator described as “inadequate oversight and control over its regulatory capital position.”
Raphaels, a London bank that is teaming up with TransferWise to give the London money transfer startup access to the Faster Payments network, was hit with a rare fine by the Prudential Regulation Authority in November 2015 after “failing to properly manage its outsourcing arrangements” over the space of seven years, the regulator said.
The incident for which the fine was handed down took place before the partnership with TransferWise, and there is no indication that the startup committed any wrongdoing, or broke any laws, by partnering with the bank.
But Raphaels is the third of TransferWise’s banking partners to have received scrutiny from the regulators.
Jo White, a spokesperson for TransferWise, told Business Insider in a statement: “We did our due diligence before choosing Raphaels Bank as a partner. We were aware that they had experienced regulatory issues after engaging third parties to provide services in the past. We made sure that in our partnership with them no third parties were involved in processing our transactions — we built the payments gateway ourselves and also have exclusive rights to use it.”
On August 2, TransferWise announced it was gaining access to the UK’s Faster Payments Service, acting as a “technical partner” for Raphaels Bank, in a move that should speed up transfers made using the service.
“Later this summer, TransferWise customers will benefit from Faster Payments to and from UK bank accounts. That means transfers will be processed instantly after TransferWise has received the payment from the customer’s bank,” the company wrote in a blog post. “TransferWise customers will now have an uninterrupted 24/7 payments service and no longer be subject to occasional bank downtime that can delay payments.”
Raphaels, founded in 1787, is one of Britain’s oldest banks, and owns hundreds of ATMs dotted across Britain.
The fine was for “outsourcing failures”: Raphaels had outsourced its “ATM finance function” to a team in another company owned by Raphaels parent company, Lenlyn Holdings.
But from 2007 to 2014, the PRA said in a press release, “employees in the team responsible for managing the outsourced functions improperly transferred funds without the knowledge or consent of Raphaels and took steps to conceal their actions. The PRA has seen no evidence that anyone else in the Group was aware of their actions. The funds were transferred from Raphaels to deal with cash flow problems in [the other company]. This meant that Raphaels was exposed to [the other company], which would have led to severe financial repercussions if [the other company] had become insolvent.”
(The PRA did not name the other company, though The Financial Times identified it as International Currency Exchange.)
The case is notable because this is not the first time TransferWise’s banking partners have had run-ins with the regulators.
In May, we reported that the Community Federal Savings Bank (a US bank it is working with for licensing reasons) was found to have “unsafe and unsound banking practices relating to management and earnings,” according to a division of the US Department of Treasury.
And in April, The Financial Times reported on the startup’s relationship with PreCash. TFW temporarily used PreCash’s banking licenses as an “authorised delegate,” as TFW went through the long-winded process of applying for its own licenses with the different US state regulators. PreCash was fined $15,000 for “serious” unspecified violations unrelated to TFW by Texas regulators in June 2015. TransferWise is now working with other banking partners — including CFSB — for its licensing needs while it works to get its own licenses.