British fintech champion accused of ‘systematic’ failures in anti-terror controls
British financial technology pioneer Railsr has been accused of gross anti-terrorist financing and money laundering failures at its Lithuanian subsidiary as it struggles to find a buyer.
Railsr, formerly known as Railsbank and backed by Visa, is facing an investigation by authorities at the Bank of Lithuania, which has accused one of its businesses of “grossly and systematically breaking” rules to stop illegal payments.
The start-up delivers so-called embedded finance, and offers financial software, payment tools and card services to other fintech apps, some of which have millions of customers.
Founded in 2016 by Nigel Verdon and Clive Mitchell, Railsr has gone up for sale and is advised by FT Partners.
Railsr previously bought the assets of the UK arm of Wirecard, the German financial technology giant that collapsed in 2020 in one of Europe’s biggest accounting scandals.
Consumer brands such as prepaid card service Pockit and business account service Anna Money are making use of the technology.
After expanding rapidly, Railsr has been hit by a widespread collapse in fintech valuations, which saw it cut its valuation in its latest funding round to $250 million. In 2022, the company made extensive redundancies, according to former employees.
The Telegraph can now reveal that the company’s Lithuanian unit, PayRNet, has been under investigation by the country’s central bank.
In a statement, the Bank of Lithuania said: “There is reason to suspect that the institution is grossly and systematically violating the law on the prevention of money laundering and terrorist financing.”
The central bank said it had applied for a court order to force PayRNet, Railsr’s European payments business, to temporarily stop taking on new customers. The entity has its European e-money license, which allows it to offer payment services across the bloc.
The regulator warned Railsr not to establish business relations with new customers, as well as intermediaries and persons distributing and/or redeeming electronic money to this institution.
A spokesman for Railsr said it had already shut down customers it believed had not met the necessary standards for money laundering. It said the investigation was “retrospective”, rather than based on its current activities.
The spokesman said: “We work very closely with all our regulators, including the Bank of Lithuania.
“The reviews of our processes (such as know-your-customer and anti-money laundering controls) and intermediary activities are ‘retrospective’ and as the Bank of Lithuania has only reached an interim review, we have not yet had a chance to provide a management response to the historical controls and customers they have observed.
“We have already exited customers and end users who failed to meet the standards required. We are in the process of appealing the notice from the Bank of Lithuania that has been issued ahead of any final assessment findings. We will continue to work closely with the Bank of Lithuania about any next steps and the changing regulatory climate.”
It declined to comment on which customers it had removed.
Last year, Railsr had been looking for a funding round at a valuation of $1 billion, a so-called “unicorn” value. In October, however, it raised funding for a $250 million valuation cut. Financial technology companies have suffered from falling valuations amid a slowdown in venture capital funding.
Railsr has since put up a for sale sign above its business. It is said to have attracted interest from Flutterwave, a multi-billion dollar Nigerian payments company, according to Sky News.
Mr Verdon, Railsr’s chief executive, previously said the company “transformed the financial industry the way Apple did the music industry when they created iTunes”.
The company has previously raised more than $100 million, including $46 million last year, from investors including Visa.
A spokesman said the company was in “ongoing discussion with interested parties as part of an M&A process”.
