bankingtech.com FinTech Written by Ruby Hinchliffe 29th March 2021 The Financial Conduct Authority (FCA) has finally decided to reign in cryptocurrency exchange, Wirex, whose employees first approached the UK regulator independently over anti-money laundering (AML) concerns back in February 2019.
The sources allege that their concerns included customer money being laundered through the company and that crypto was being traded which wasn’t the company’s to trade.Wirex was unable to comment on the AML issue raised.“There was a stage when two of the most senior people went to the FCA to blow the whistle”
Wirex – which claims to have some 3.5 million customers – announced on 24 March that it had paused account openings for new UK customers under orders from the FCA, which has found the start-up to be in violation of the Fifth Anti-Money Laundering Directive (5AMLD).FCA “turned a blind eye”
Two employees had already approached the regulator, according to former Wirex employees who spoke to FinTech Futures anonymously.One was in a senior compliance position.
Independent of the fintech’s management team, these employees attempted to report AML concerns over the start-up’s operations as far back as February 2019.But after going to the FCA’s office with their concerns “twice”, one of the employees was made redundant, whilst the other was given a significant pay increase.Wirex says no employees have ever been dismissed for “whistleblowing”.
“There was a stage when two of the most senior people went to the FCA to blow the whistle, but nothing happened,” a former employee tells FinTech Futures .
That year, Wirex got rid of its money laundering and risk officer (MLRO).
It then proceeded to try and recommend its chief compliance officer (CCO) for the role.
But being a clear conflict of interest, the CCO did not take the role.
“The FCA turned a blind eye.[Wirex is] telling customers they’re FCA regulated, but the irony is the FCA doesn’t care,” says another source.
Despite the regulator allegedly being “very interested” in the reports, and holding a “serious concern around management”, nothing was done about the concerns for more than two years.Since then, countless customers have felt the consequences of this.Freezing accounts
It’s unclear what has prompted the FCA to halt Wirex’s UK onboarding operations now.
The FCA became the AML and counter terrorist financing supervisor of businesses carrying out certain crypto asset activities in the UK on 10 January 2020.
Whilst this goes some way to explaining why the FCA didn’t act on the findings brought to them in February 2019, it does not explain why the regulator allowed Wirex to continue operating on an FCA-issued e-money licence.FinTech Futures reached out to the FCA.The regulator acknowledged the email but did not send an official comment in response.
“Lots of customers came into the office to ask what was happening”
In February, FinTech Futures released an article highlighting at least 16 customers over a nine-day period who had complained over unexplained account restrictions.
Since then, 16 more customers have come forward with similar complaints.
They claim to be unable to access up to thousands of pounds – the most being £30,000 – in funds they’ve stored on the platform.
Users have been paying eye-watering fees – as much as 50% – to extract funds, or they’ve simply been unable to access their account at all, due to a prolonged, unexplained freezing.
Wirex claimed last month that “to maintain the integrity of our checks”, it could not “disclose the full details of why individual accounts are blocked”.
It now seems the integrity of such checks are being pulled into question.
“Laundering” customer money
An allegation corroborated by at least four sources suggests Wirex spent Bitcoin Cash which should have gone to customers, by laundering it through its books.
In August 2017, some miners and developers initiated a “hard fork” – effectively creating a new currency, called Bitcoin Cash.This meant Wirex’s users received Bitcoin Cash into their account.
Wirex notes that this allegation was “unparticularised and unsupported”, and was “unable to respond fully to it”.It adds that, “sometimes cryptoassets fork and a new version of the cryptoasset is created”.
“As we state in our T&Cs, customers may not automatically be able to participate in forks, and we let customers know ahead of time if this is the case,” Wirex adds.
But according to sources, Wirex kept the cash, assuming users wouldn’t think about it – despite being owed it.Wirex’s custodian, BitGo, initially collected the cash on its behalf.
Around the same time as the Bitcoin pay out, millions were injected into Wirex “on behalf of its directors”.When employees tried to verify the funding source of these millions via Elliptic, Wirex’s AML system, it showed them going straight back to customers’ accounts.
Despite Wirex’s self-assurances, users did notice the disappearance of their Bitcoin Cash.
Wirex therefore proceeded to tell them they didn’t have two-factor authentication, and that as a result their accounts had been hacked.
“There was a lot of money involved,” says one source.“But clients just had to suck it up.”
Another adds: “Lots of customers came into the office to ask what was happening, but we had no idea what we could say.That was really painful.”
Wirex tells FinTech Futures that it only “trades cryptocurrency when we are entitled to do so”.
Short on cash
A further accusation suggests the company traded cryptocurrency which wasn’t theirs to trade, having borrowed it in the hope it would go up.But after they bought it, the market went down and Wirex couldn’t pay it back.
According to one source, millions in crypto was missing from Wirex’s ledgers as a result of this, bringing them into a “serious deficit”.The fintech has long struggled to make ends meet.Wirex paid employees in its own tokens
One source tells FinTech Futures “Wirex always wanted investment”, but that since Japan’s SBI Group invested in its March 2017 Series A, “nothing quite fell into place”.
The start-up hired multiple chief financial officers (CFOs).One moved to Revolut, but none have been able to garner funding.Ripple came close to investing, according to one source, but pulled out with no explanation.
In Ukraine, the fintech’s product team was paid with Wirex Tokens – the platform’s own cryptocurrency – for a time.
One source describes the period as “a tough time” for the firm, due to the lack of investment.
FinTech Futures spoke to some former employees who left due to the lack of salary increases.“There’s lots of graduates coming in to do jobs on very low salaries,” one source says.
Wirex says it hires “employees on competitive terms”, and that its Ukraine-based product team “are valued staff members” – despite not paying them in a fiat currency.Phantom Ukrainian operations
Wirex last filed financial results for 2019 in April 2020.These are its only filed accounts.
Neither of its directors – Dmitry Lazarichev or Pavel Matveev – are on the FCA’s register, despite Wirex being regulated by the FCA.
The start-up’s entire customer support unit – which makes up the bulk of its employees – sits in Ukraine, rather than the UK.And yet, the firm does not list Ukraine as a subsidiary.Wirex tells FinTech Futures that it houses its Wirex Product team in Ukraine.
But its 2019 accounts only mention the UK, Singapore, Japan, Gibraltar, and Canada – failing to mention the Ukraine.
“If the Ukraine company goes bust, the UK company is completely separate,” says one source.
“Who owns [its business in] Ukraine? Who will be liable for this?”.
As well as the FCA, other organisations also seem to have fallen short on their due diligence of the company.Wirex’s partners include Mastercard, Visa, and Railsbank – which inherited Wirecard’s UK customers, which included Wirex..
