19 September 2024 by Akila Quinio, Ortenca Aliaj and Robert Smith in London

In December 2021, the Bank of London unveiled a glitzy US headquarters in New York. It was part of a global expansion for the start-up bank founded by former Barclays executive Anthony Watson, which boasted former Goldman Sachs heavyweight Harvey Schwartz and Labour grandee Peter Mandelson on its board.

The offices had a troubled history: they once housed the now defunct family office Archegos Capital Management, whose implosion helped bring down banking giant Credit Suisse with it.

Little over a year later, the Bank of London’s New York office sat largely empty while employees across the Atlantic were forced to share a space with an air-filtering company owned by the husband of one of the bank’s executives. Cardboard boxes separated workers from the two companies, according to two people familiar with the situation, who said the bank was trying to conserve cash by saving on its WeWork bills.

By July this year, the fintech was calling on investors for more money, saying it had an “immediate” need to raise millions of pounds of cash for regulatory capital. It managed to secure £42mn in fresh funding over the summer.

The Bank of London announced its fundraising earlier this month, just days after UK tax authorities filed a petition to wind up the company over unpaid debts. A spokesperson for the bank said at the time that the two events were unrelated. Watson also stepped down days earlier.

These events marked a plummet back to earth for the Bank of London, which has positioned itself as one of Britain’s most promising tech upstarts since receiving a banking licence from UK regulators in 2021, when it boasted of surpassing a $1bn valuation that lent it “unicorn” status.

Rather than making money by accepting customer deposits and extending loans like a traditional lender, the Bank of London set out to dominate the settlement and clearing market by aiming to move money around the world more quickly, cheaply and safely than its rivals such as NatWest and Barclays.

The Bank of London is one of many innovative financial start-ups in the UK, which has proven fertile ground for “challenger banks” trying to disrupt traditional lenders — a bright spot in the country’s post-Brexit landscape. Britain’s regulators have been at the forefront of so-called sandboxes intended to foster innovation, since copied around the world.

Rupak Ghose, a fintech consultant and former financials research analyst at Credit Suisse, said the events that have come to light this month have raised questions about the Bank of London’s governance.

“This is particularly surprising given this is one of the first new clearing banks in the UK in hundreds of years and we would have expected regulators to have been more vigilant,” he added.

The bank attributed the HM Revenue & Customs petition — since withdrawn — to an administrative error and said it had repaid the tax authorities in full. It then announced £42mn in fresh financing from investors led by existing investor and board member Mark Tluszcz.

Had the fundraising not come through this summer, the bank had readied contingency plans for a solvent wind-down, the Financial Times has previously reported.

The bank said in a statement it was “moving forward with new leadership, a clear strategy, a strong financial position and the recently reaffirmed support of its investors”.

It declined to comment further on points raised in this article.

The Bank of England’s Prudential Regulation Authority, and the Financial Conduct Authority, also declined to comment.

The Bank of London was first founded in 2016 by Watson, a former crypto entrepreneur who last year received a CBE for services to the LGBT+ community. He was among 50 business leaders chosen by the FT in 2013 for their advocacy work for LGBT+ people. The 47-year-old, whose career included stints at Barclays and Nike, initially studied theology with the intention of becoming a minister.

In addition to Mandelson sitting on the board of the bank’s parent company, Watson has cultivated close ties to the Labour party, donating nearly £500,000 to the party and to politicians since 2015, including Angela Eagle, Owen Smith and Yvette Cooper, official records show.

Amid a sea of banking bosses who choose their words carefully, Watson is distinctively forthright. He once told the media that a now-defunct payment venture he worked on at Barclays called Pingit had secured “amazing” traction and “only porn stars get that sort of traffic”.

Watson has become known for his Instagram profile that showcases his trips on private jets and to high-society events.

He previously told the Mail on Sunday: “I’m not going to apologise for how I look, nor for being successful . . . I put my own money in this — if I were chief executive of Lloyds, I probably wouldn’t be as flamboyant as I am with my personal life on Instagram.”

Beyond his curated online presence, former colleagues have described Watson as a “volatile” leader who does not like to be challenged. Watson declined to comment on their description.

At its inception, the Bank of London recruited several employees from 10x Future Technologies, a fintech founded by former Barclays chief executive Antony Jenkins. Although it claimed at launch to be “on track” to have 3,000 employees globally, the Bank of London only registered an average of 37 staff members in its latest 2022 accounts and now has about 300, according to data provider PitchBook.

The bank’s business model is unusual. The lossmaking start-up, which earlier this week said it has about £500mn in deposits, says it is immune to traditional bank runs because it parks them at the BoE rather than lending them out. It says it offers depositors rates of up to 3.82 per cent for accounts that give one day’s notice for access to funds, rising to 4.65 per cent for accounts with as much as 180 days’ notice. It aims to make money from payment services and by franchising its technology to allow corporate clients to offer regulated banking services under their own brands.

Even before this month, it faced a series of setbacks. The Bank of London was almost five months behind its original schedule to get restrictions lifted on its banking licence, according to a document seen by the FT.

One former senior employee said they could never get answers to basic questions about its capitalisation. 

Its latest accounts show a £13mn loss in 2022. Its July investor presentation — which stated the bank had an “immediate” need to raise £18.5mn of cash for regulatory capital — set out that in 2024 the company had lost £27mn on an earnings before interest, tax depreciation and amortisation basis, but projected that the bank would achieve a “monthly profit” by August 2025 and would generate more than £624mn in ebitda by 2030. Income was projected to grow from just £11mn in 2024 to more than £1bn in 2030.

The bank has also suffered the departure of some key executives. Group chief operating officer Jim Ditmore and chief markets officer, Shaunt Sarkissian, left in 2023. Chief compliance, risk and security officer, Bill Dennings, left in 2022. Non-executive director and former regulator Monique Melis left the UK bank board in July.

The recent fundraising has not stemmed exits. Several of the bank’s US employees, including the regional technology lead, were fired in recent weeks, according to two people familiar with the matter. Its head of compliance and money laundering reporting, Ben Tallick, announced he was leaving the bank in a LinkedIn post last week.

Meanwhile, British regulators have received a formal complaint about the bank’s governance, according to a person familiar with the situation. Complaints include concerns around staff turnover and the vetting of new employees, the person added. While the person said regulators are looking into the complaint, it is too early to determine any outcome.

The bank hired on contract a convicted fraudster to work in its finance team, according to five people familiar with the matter. In 2022, Gareth Booth joined as a contractor — two years after he had been convicted of defrauding his previous employer of £587,000 and having been handed a custodial sentence. He was also barred by the Solicitors Regulation Authority from working in a law firm. Watson was not initially aware of Booth’s conviction but decided to keep him on after he learned of it, according to two former employees.

The bank said Booth was a contractor to the holding company and was not an employee, and that “he no longer has any role, contractor or otherwise, within the group”.

Booth did not respond a message on LinkedIn seeking comment. Watson did not provide a comment for publication.

Despite being lossmaking, regulatory delays and having signed few big clients, the Bank of London positioned itself as a bidder for SVB UK last year during a crunch weekend that ended with HSBC buying the local unit of the collapsed tech lender for £1.

In a memo sent to staff last year, shortly after its bid for SVB UK became public, the Bank of London’s co-president, Rebecca Skitt, said: “Our credibility on so many levels is so much higher, with many messages from extremely senior people in government, regulation and business, applauding the focus, ambition and relevance of what we stepped up to do following the biggest bank failure since 2008.” 

She added: “So much will be written about this chapter in Britain’s banking industry in the weeks to come. We are a part of that story.”

Additional reporting by Emma Dunkley and Martin Arnold in London

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